Trading Portfolios Electronically – An Experimental Approach

Sayee Srinivasan ()
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Sayee Srinivasan: OptiMark, Inc.

Netnomics, 2002, vol. 4, issue 1, 39-71

Abstract: Abstract This paper focuses on a simple axiom – investors prefer to hold diversified combinations of assets. Arguing that pooling vehicles like mutual funds offer approximate solutions, we propose a portfolio trading mechanism that allows individuals to trade diverse combinations of assets through a single order. Given the complexity of the market mechanism, we construct a prototype of this trading system and test it through a series of laboratory experiments with student subjects. We address the quality of the price discovery process, quality of allocations, and efficiency of the market mechanism. Results from a set of laboratory experiments indicate that the performance of such systems is sensitive to design aspects as well as relative experience of participants.

Keywords: market mechanisms; portfolio trading; trading systems (search for similar items in EconPapers)
Date: 2002
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DOI: 10.1023/A:1014926929215

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