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Call and Continuous Trading Mechanisms Under Asymmetric Information: An Experimental Investigation
Author(s) -
SCHNITZLEIN CHARLES R.
Publication year - 1996
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1996.tb02696.x
Subject(s) - adverse selection , common value auction , market liquidity , insider trading , context (archaeology) , information asymmetry , microeconomics , asset (computer security) , price formation , economics , alternative trading system , financial economics , business , algorithmic trading , monetary economics , computer science , finance , paleontology , computer security , biology
I examine the relative performance of call and continuous auctions under asymmetric information by manipulating trading rules and information sets in laboratory asset markets. I find significant differences in an environment that extends the Kyle (1985) framework to permit the exogenous liquidity trading motive to have a natural economic interpretation. The adverse selection costs incurred by noise traders are significantly lower under the call auction, despite no significant reduction in average price efficiency. This result suggests that discussions of the costs and benefits of insider trading should take place within the context of a specific trading mechanism.