Uncertainty About Informed Trading in Dealer Markets - An Experiment

31 Pages Posted: 9 Aug 2015 Last revised: 10 Feb 2017

See all articles by Yaroslav Rosokha

Yaroslav Rosokha

Purdue University - Krannert School of Management

Chi Sheh

University of the West

Date Written: September 1, 2016

Abstract

We use an economic experiment to examine the impact of an uncertain level of asymmetric information on the behavior of security dealers. Specifically, we distinguish three types of uncertainty with respect to informed trading - risk, compound risk, and ambiguity - for both a monopoly and a duopoly market setting. We find that dealers’ bidding behavior is less aggressive under ambiguity and compound risk than under a risk. Additionally, we find that stochastic models of choice do well in explaining the observed difference in market outcomes for both individual (monopoly) and strategic (duopoly) settings.

Keywords: Dealer Markets, Market Experiments, Uncertainty

JEL Classification: G24, D82, D40

Suggested Citation

Rosokha, Yaroslav and Sheh, Chi, Uncertainty About Informed Trading in Dealer Markets - An Experiment (September 1, 2016). Asian Finance Association (AsianFA) 2017 Conference, Available at SSRN: https://ssrn.com/abstract=2641207 or http://dx.doi.org/10.2139/ssrn.2641207

Yaroslav Rosokha (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

Chi Sheh

University of the West ( email )

1409 Walnut Grove Avenue
Rosemead, CA 91770
United States

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