Insider Trading and Portfolio Structure in Experimental Asset Markets

We report results of a series of nine market experiments with asymmetric information and a fundamental value process that is more quot;realisticquot; than those in previous experiments. Both a call market institution and a continuous double auction mechanism are employed. We find considerable pricing inefficiencies that are only partially exploited by insiders. The magnitude of insider gains is analyzed experimentally. We find support for the hypothesis that the continuous double auction leads to more efficient outcomes. Finally, we present evidence of an endowment effect: the initial portfolio structure influences the final asset holdings of experimental subjects