On the microstructure of price determination and information aggregation with sequential and asymmetric information arrival in an experimental asset market (original) (raw)
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Documentos de trabajo (FEDEA), 2008
Resumen: Utilizando experimentos de laboratorio se demuestra que la liberalización de restricciones de venta de bienes financieros baja el precio del bien, independientemente si el bien es inicialmente sobre o infravalurado. Por tanto, la agregación de información mejora en caso que el bien es sobrevalorado, pero empeora si el bien es infravalorado. Encontramos con respecto a los pagos que no sólo agentes no informados sino tambiién algunos tipos de agentes parcialmente informados sufren de la liberalizaciión del ...
Information aggregation in experimental asset markets in the presence of a manipulator
Documentos de trabajo (FEDEA), 2008
We study with the help of a laboratory experiment the conditions under which an uninformed manipulator - a robot trader that unconditionally buys several shares of a common value asset in the beginning of a trading period and unwinds this position later on - is able to induce higher asset prices. We find that the average contract price is significantly higher in the presence of the manipulator if, and only if, the asset takes the lowest possible value and insiders have perfect information about the true value of the asset. It is also evidenced that the robot trader makes trading gains; i.e., independently on whether the informed traders have perfect or partial information, it earns always more than the average trader. Finally, not only uninformed subjects suffer from the presence of the robot trader, but also some of the imperfectly informed insiders have lower payoffs once the robot trader is added as a market participant.
Documentos de trabajo (FEDEA), 2008
We study with the help of a laboratory experiment the conditions under which an uninformed manipulator -a robot trader that unconditionally buys several shares of a common value asset in the beginning of a trading period and unwinds this position later on -is able to induce higher asset prices. We find that the average contract price is significantly higher in the presence of the manipulator if, and only if, the asset takes the lowest possible value and insiders have perfect information about the true value of the asset. It is also evidenced that the robot trader makes trading gains; i.e., independently on whether the informed traders have perfect or partial information, it earns always more than the average trader. Finally, not only uninformed subjects suffer from the presence of the robot trader, but also some of the imperfectly informed insiders have lower payoffs once the robot trader is added as a market participant.
The effect of short-selling of the aggregation of information in an experimental asset market
Nº.: Statistics and Econometrics Series …, 2008
We show by means of a laboratory experiment that the relaxation of short–selling constraints causes the price of both an overvalued and an undervalued asset to decrease. Hence, the aggregation of information by the market price becomes better in case the asset is overvalued but worse if the asset is undervalued. With respect to payoffs, we find that not only uninformed but also some of the imperfectly informed traders suffer from the weakening of short–selling constraints.
The value of information in a multi-agent market model
The European Physical Journal B, 2007
We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic relationship of net returns of traders as a function of information levels, both in the experiments and in the simulations. Particularly, averagely informed traders perform worse than the non informed and only traders with high levels of information (insiders) are able to beat the market. The simulations and the experiments reproduce many stylized facts of tick-by-tick stock-exchange data, such as fast decay of autocorrelation of returns, volatility clustering and fat-tailed distribution of returns. These results have an important message for everyday life. They can give a possible explanation why, on average, professional fund managers perform worse than the market index. PACS. 89.65.Gh Economics; econophysics, financial markets, business and management -89.65.-s Social and economic systems -89.70.+c Information theory and communication theory -89.75.-k Complex systems 1 Introduction "We live in an information society" is a commonly used phrase today. Education, knowledge and information are 2 Bence Tóth, Enrico Scalas, Jürgen Huber, Michael Kirchler: The value of information in a multi-agent market model considered to be the most important ingredients to success in business. While we generally agree with this notion, we think that it does not always hold for financial markets. 70 years ago Cowles [1] was the first to find that the vast majority of stock market forecasters and fund managers are not able to beat the market. Subsequent studies by Jensen [2] and Malkiel [3,4] confirmed this finding. On average about 70 percent of actively managed stock market funds are outperformed by the market, for bonds the number is even higher at 90 percent. Passive investment yields on average 1.5 percent per annum more than an actively managed fund [3]. How can we explain that the highly paid, professionally trained and, above all, well informed specialists managing these funds are not able to perform better than the market? The question whether more information is always good for market participants is highly relevant not only for fund managers, investment banks and regulators, but for every individual investor as well. In this paper we present results from experimental and simulation studies which allow improving our understanding of the relationship between information and investment success in markets. Our model features several innovations: First, our model is a multi-period model and therefore dynamic. It thereby overcomes one of the major weaknesses of earlier research relying only on static environments. Second, we use several information levels instead of only two used in most of the literature on the topic (e.g. Refs. [5,). This is critical to go beyond the straightforward (and not surprising) result that insiders are able to outperform uninformed investors. As we will see the most interesting cases lie between these extremes. The averagely informed traders are the ones we are most interested in, as they exhibit underperformance in our experiments.
Information Dissemination and Aggregation in Asset Markets with Simple Intelligent Traders
1998
Various studies of asset markets have s h o wn that traders are capable of learning and transmitting information through prices in many situations. In this paper we replace human traders with intelligent s o f t ware agents in a series of simulated markets. Using these simple learning agents, we are able to replicate several features of the experiments with human subjects, regarding (1) dissemination of information from informed to uninformed traders, and (2) aggregation of information spread over di erent traders.
Information Acquisition in a Limit Order Market
SSRN Electronic Journal, 2000
We model endogenous information acquisition in a limit order market for a single financial asset. The asset has a common value; in addition, each trader has a private value for it. Traders randomly arrive at the market, after choosing whether to purchase information about the common value. They may either post prices or accept posted prices. If a trader's order has not executed, he randomly reenters the market, and may change his previous order. The model is thus a dynamic stochastic game with asymmetric information. We numerically solve for the equilibrium of the trading game, and characterize equilibria with endogenous information acquisition. Over a range of information acquisition costs, the game exhibits a prisoner's dilemma-all agents, including those who acquire information, are worse off. Agents with the lowest intrinsic benefit from trade have the highest value for information and also tend to supply liquidity. As a result, market observables such as bid and ask quotes, in addition to transaction prices, are informative about the common value of the asset. Adverse selection is important for individuals (agents have lower payoffs when uninformed), but in the aggregate it has little effect on investor surplus, unless gains to trade are small. Comparisons to a frictionless benchmark show that the limit order market is effective at consummating trade and generating consumer surplus, even in the presence of asymmetric information.
Option Pricing in Markets with Informed Traders
International Journal of Theoretical and Applied Finance, 2020
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