The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Call and Continuous Trading Mechanisms Under Asymmetric Information: An Experimental Investigation
Published: 06/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb02696.x
CHARLES R. SCHNITZLEIN
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.
When It's Not The Only Game in Town: The Effect of Bilateral Search on the Quality of a Dealer Market
Published: 04/18/2012 | DOI: 10.1111/j.1540-6261.1997.tb04818.x
CHRISTOPHER G. LAMOUREUX, CHARLES R. SCHNITZLEIN
We report results from experimental asset markets with liquidity traders and an insider where we allow bilateral trade to take place, in addition to public trade with dealers. In the absence of the search alternative, dealer profits are large—unlike in models with risk‐neutral, competitive dealers. However, when we allow traders to participate in the search market, dealer profits are close to zero. Dealers compete more aggressively with the alternative trading avenue than with each other. There is no evidence that price discovery is less efficient when the specialists are not the only game in town.