The Informational Efficiency of Experimental Asset Markets

A fundamental difficulty in devising any test of general efficient market hypotheses is the specification of the relevant public and private information sets of traders. Without a consensus as to reasonable empirical specifications, tests of the hypotheses remain minimal or controversial. In this study we examine the efficiency of experimental asset markets in which one may unambiguously identify the public and private information sets of traders. We focus on how market efficiency is affected by the presence of futures markets in settings that incorporate different types of uncertainty and inside information. Our experimental results support four conclusions: (1) market outcomes tend to evolve toward strong-form informationally efficient equilibria, whether or not futures markets and/or event uncertainty are present; (2) the presence of futures markets clearly stabilizes spot prices; (3) the presence of futures markets tends to speed the evolution of asset markets to more efficient equilibria where there is event uncertainty; and (4) futures markets promote the "leakage" of inside information, with strong-form predictions outperforming semi-strong-form predictions.