Heterogeneous Information in Experimental Asset Markets

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Abstract

In the standard economic theory, informed traders have more advantages in economic activities than uninformed ones. In particular, it seems obvious that one can obtain more gains in financial markets by having more information about the fundamental values of an asset. This study examines whether better-informed traders have an advantage over less-informed ones by conducting experimental asset markets following Huber, et al. (2008, Journal of Economic Behavior & Organization). Our experiments show that better-informed traders do not necessarily gain more than less-informed ones.

In the standard economic theory, informed traders have more advantages in economic activities than uninformed ones. In particular, it seems obvious that one can obtain more gains in financial markets by having more information about the fundamental values of an asset. This study examines whether better-informed traders have an advantage over less-informed ones by conducting experimental asset markets following Huber, et al. (2008, Journal of Economic Behavior & Organization). Our experiments show that better-informed traders do not necessarily gain more than less-informed ones.

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