Partial knowledge is a dangerous thing - On the value of asymmetric fundamental information in asset markets

We present results from experimental asset markets and simulations in which traders are asymmetrically informed about the fundamental value of an asset. To control for learning we run the experimental markets three times with identical subjects at identical information levels. With questionnaires we further check whether the results are driven by subjects' overconfidence. To obtain benchmarks and to measure the impact of the asymmetric information structure on traders' abnormal returns, we run two simulation settings. In the experimental markets insiders outperform the market and uninformed computerized random traders perform equally well compared to average informed traders. This is in line with the results of the equilibrium simulation in which agents choose between a random strategy and their fundamental strategy until equilibrium is reached. Similar to the equilibrium simulation, insiders mainly use a fundamental strategy while average and weak informed subjects ignore the fundamental information given to them. Our benchmark simulations also show that the latter would have ended up worse if they would have used their fundamental information in the experiment. When looking for behavioral explanations we find no evidence for overconfidence and learning in the markets, thus concluding that the information structure is the main driver of our results.