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Informational asymmetries in laboratory asset markets with state-dependent fundamentals

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  • Keser, Claudia
  • Markstädter, Andreas

Abstract

We investigate the formation of market prices in a new experimental setting involving multi-period call-auction asset markets with state-dependent fundamentals. We are particularly interested in two informational aspects: (1) the role of traders who are informed about the true state and/or (2) the impact of the provision of Bayesian updates of the assets´ state-dependent fundamental values (BFVs) to all traders. We find that markets with asymmetrically informed traders exhibit smaller price deviations from fundamentals than markets without informed traders. The provision of BFVs has little to no effect. Behavior of informed and uninformed traders differs in early periods but converges over time. On average, uninformed traders offer lower "higher" limit prices and hold less "more" assets than informed traders in "good"-state ("bad"-state) markets. Informed traders earn superior profits. The precision of mar ket price forecasts is impeded by the presence of insiders.

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  • Keser, Claudia & Markstädter, Andreas, 2014. "Informational asymmetries in laboratory asset markets with state-dependent fundamentals," University of Göttingen Working Papers in Economics 207 [rev.], University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:207r
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    Cited by:

    1. Robert Merl, 2021. "Literature Review of Experimental Asset Markets with Insiders," Working Paper Series, Social and Economic Sciences 2021-04, Faculty of Social and Economic Sciences, Karl-Franzens-University Graz.
    2. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).

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    More about this item

    Keywords

    experimental economics; asset markets; informational asymmetries;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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