Asset market with insider traders : an experiment

• Main Authors: Djuarto, Christin, Halim, Edward, Thamrin, Vivin Valentine
• Other Authors: School of Humanities and Social Sciences
• Format: Final Year Project
• Language: English
• Published: 2012
• Subjects: DRNTU::Social sciences
• Online Access: http://hdl.handle.net/10356/48719
• Institution: Nanyang Technological University

Asset markets with presence of insider traders are found in real financial markets but are rarely studied in experimental economics. In this study, we examine the impacts of different insider traders’ regulations on the bubbles formed in market and overall market trading activities in terms of trade volume and bids and offers posted by subjects. We also analyze the effect of trading identity (normal or insider traders) and individual overconfidence levels on their trading activities. To achieve these objectives, three stages of experiments are conducted: overconfidence test, risk aversion test and asset market experiment. There are three different treatments for our experiments (i.e. treatment AWARE, DLIVE-AWARE and DLIVE-AWARE-HOLD). Data obtained from twelve experimental sessions shows that bubbles formed in the market are associated with the total market bids and offers, announcement of good dividend and lagged bubbles from previous period. Subjects’ trade volume and total bids offers are higher when they trade in market with insider disclosure requirement, but they exhibit lower trade volume and total bids offers in markets with holding restrictions. Subjects’ higher overconfidence level is associated with higher trade volume and total bids offers. Insider traders are also found to be more likely to post higher number of bids and offers than normal traders.