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Title:Do Insiders Contribute to Market Efficiency? Informational Efficiency and Liquidity of Experimental Call Markets with and without Insiders PDF Logo
Authors:Oehler, Andreas
Heilmann, Klaus
Läger, Volker
Issue Date:2000
Series/Report no.:Bank- und Finanzwirtschaftliche Forschung: Diskussionsbeiträge des Lehrstuhls für Betriebswirtschaftslehre, insbesondere Finanzwirtschaft, Universität Bamberg 11
Abstract:This paper reports the results of 13 experimental asset markets with 195 subjects that explore the effects of insider behavior on the price formation process and market liquidity. The experimental call markets use a more realistic design than related studies. We introduce infinitely-lived assets instead of periodical liquidation (so-called ?reset? markets) and provide full market transparency to the investors with an open orderbook. Our main findings are that insider trading does not improve informational efficiency at all but depresses market liquidity of the assets significantly. At a first glance, the observed spread widening as an impact of insider behavior leads to the conclusion that our call markets react ?as if? all subjects behave rationally like dealers in a market making environment. At a second glance, a first look into the individual data shows that only a smaller group of investors act as ?endogenous? market makers in the call market regime.
Subjects:Market Microstructure
Experimental Asset Markets
Insider Behavior
Market Efficiency
Call Markets
Behavioral Finance
JEL:G14
D44
G12
Document Type:Working Paper
Appears in Collections:Diskussionsbeiträge, Lst. f. BWL, insb. Finanzwirtschaft, Universität Bamberg

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