Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/224618 
Year of Publication: 
2020
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2020: Gender Economics
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
The present study contributes to the ongoing debate on possible costs and benefits of insider trading. We present a novel call auction model with insider information. Our model predicts that more insider information improves informational efficiency of prices, but this comes at the expense of reduced gains from trade. The model further implies that in the presence of insider information the call auction performs worse than continuous double auction. Testing these hypotheses in the lab we find that insider information increases informational efficiency of call auction prices but does not decrease the realized gains from trade. Contrary to the theoretical prediction, the call auction does not perform worse than the continuous double auction. In fact, when the probability of insider information is high, the call auction has the most informative prices and highest realized gains from trade. Our experiment provides new evidence, from markets with very asymmetrically dispersed information, that lends support to the decision by many stock exchanges to use call auctions when information asymmetries are severe and the need for accurate prices is large, e.g., at the open or close of the trading day.
Subjects: 
call market
call auction
double auction
asymmetric information
experiment
informational efficiency
JEL: 
D82
C92
G14
Document Type: 
Conference Paper

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