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Trading behavior and profits in experimental asset markets with asymmetric information

Author

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  • Stöckl, Thomas
  • Kirchler, Michael

Abstract

We study trading behavior and its profitability in experimental asset markets with asymmetrically informed traders. We find that insiders make most of their profits from trades which are initiated by their limit orders. The average informed lose most with market orders and their losses are highest when they pick up insiders’ limit orders. Uninformed traders act as liquidity providers. They place the highest number of limit orders and end up with the market return.

Suggested Citation

  • Stöckl, Thomas & Kirchler, Michael, 2014. "Trading behavior and profits in experimental asset markets with asymmetric information," Journal of Behavioral and Experimental Finance, Elsevier, vol. 2(C), pages 18-30.
    • Handle: RePEc:eee:beexfi:v:2:y:2014:i:c:p:18-30
    DOI: 10.1016/j.jbef.2014.03.001
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    Citations

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    Cited by:

    1. Stöckl, Thomas & Palan, Stefan, 2018. "Catch me if you can. Can human observers identify insiders in asset markets?," Journal of Economic Psychology, Elsevier, vol. 67(C), pages 1-17.
    2. Merl, Robert, 2022. "Literature review of experimental asset markets with insiders," Journal of Behavioral and Experimental Finance, Elsevier, vol. 33(C).
    3. Merl, Robert & Palan, Stefan & Schmidt, Dominik & Stöckl, Thomas, 2023. "Insider trading regulation and trader migration," Journal of Financial Markets, Elsevier, vol. 66(C).
    4. Ferri, Giovanni & Ploner, Matteo & Rizzolli, Matteo, 2021. "Trading fast and slow: The role of deliberation in experimental financial markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    5. Palan, Stefan & Stöckl, Thomas, 2017. "When chasing the offender hurts the victim: The case of insider legislation," Journal of Financial Markets, Elsevier, vol. 35(C), pages 104-129.
    6. Angerer, Martin & Neugebauer, Tibor & Shachat, Jason, 2023. "Arbitrage bots in experimental asset markets," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 262-278.
    7. repec:grz:wpsses:2021-04 is not listed on IDEAS

    More about this item

    Keywords

    Asymmetric information; Liquidity; Trading behavior; Limit order markets; Experimental finance;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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