Call and continuous trading mechanisms under asymmetric information: an experimental investigation
Article Abstract:
I examine the relative performance of call and continuous auctions under asymmetric information by manipulating trading rules and information sets in laboratory asset markets. I find significant differences in an environment that extends the Kyle (1985) framework to permit the exogenous liquidity trading motive to have a natural economic interpretation. The adverse selection costs incurred by noise traders are significantly lower under the call auction, despite no significant reduction in average price efficiency. This result suggests that discussions of the costs and benefits of insider trading should take place within the context of a specific trading mechanism. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1996
User Contributions:
Comment about this article or add new information about this topic:
Non-fundamental speculation
Article Abstract:
We study an intertemporal asset market where insiders coexist with "non-fundamental" speculators. Non-fundamental speculators possess no private information on fundamental values of assets, but have superior knowledge about some aspect of the market environment. We show that the entry of these (rational) speculators can lead to reductions in market liquidity and in the information content of prices, even in an efficient market. Also, equilibrium trades display patterns of empirical interest. For example, speculators appear to chase trends and lose money after market "overreactions," while insiders trade as contrarians and profit after such overreactions. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1996
User Contributions:
Comment about this article or add new information about this topic:
Transparency and liquidity: a comparison of auction and dealer markets with informed trading
Article Abstract:
Trading systems differ in their degree of transparency, here defined as the extent to which market makers can observe the size and direction of the current order flow. We investigate whether greater transparency enhances market liquidity by reducing the opportunities for taking advantage of uninformed participants. We compare the price formation process in several stylized trading systems with different degrees of transparency: various types of auction markets and a stylized dealer market. We find that greater transparency generates lower trading costs for uninformed traders on average, although not necessarily for every size of trade. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1996
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Dramatic digital interactive rise powers media: Veronis projects customer service, information, ads will fuel 20% annual spirit
- Abstracts: Japan: breaking the barrier. Japan: battling on
- Abstracts: How thematic graphic branding achieves show success. Strategic partnering: forging a dynamic alliance. Softbank salves exhibitor wounds
- Abstracts: Caponnetto says medium carrying message is just as important as content. Research builds vital agency/client alliance
- Abstracts: Caponnetto says medium carrying message is just as important as content. part 2 Intel melds $120 million account