Call and Continuous Trading Mechanisms Under Asymmetric Information: An Experimental Investigation

  • Author(s): CHARLES R. SCHNITZLEIN
  • Published: Apr 30, 2012
  • Pages: 613-636
  • DOI: 10.1111/j.1540-6261.1996.tb02696.x

ABSTRACT

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.

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