Informational Asymmetries in Laboratory Asset Markets with State Dependent Fundamentals

Andreas Markstädter and Claudia Keser

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: We investigate the formation of market prices in a new experimental setting involving multi-period 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 (2) the provision of Bayesian updates of the assets state-dependent fundamental value (BFVs) to all traders. We find that bubbles are a rare phenomenon in all our treatments. Markets with asymmetrically informed traders converge faster toward the fundamentals of the underlying state and exhibit smaller price deviations from fundamentals, suggesting higher efficiency of markets with asymmetrically informed traders. The provision of BFVs has little to no effect. Behavior of informed and uninformed traders differs at the beginning but converges during the course of the markets. On average offers of uninformed traders are lower (higher) than offers of informed traders in the good ( bad ) state resulting in that uninformed traders hold less (more) assets in good ( bad ) state markets compared to informed traders. Informed traders earn superior profits.

JEL-codes: C92 D53 D82 (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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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100359

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