Informational asymmetries in laboratory asset markets with state-dependent fundamentals

Claudia Keser and Andreas Markstädter

No 207 [rev.], University of Göttingen Working Papers in Economics from University of Goettingen, Department of Economics

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.

Keywords: experimental economics; asset markets; informational asymmetries (search for similar items in EconPapers)
JEL-codes: C92 D47 D53 D82 G14 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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