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Privileged Traders and Asset Market Efficiency: A Laboratory Study

Published online by Cambridge University Press:  06 April 2009

Daniel Friedman
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Abstract

The 39 experiments reported here examine the impact on trading profits and on market performance of awarding special trading privileges to some traders and not others. In call market experiments, the last-mover and orderflow access privileges are both modestly profitable and neither impairs market performance. In continuous market experiments, quicker access to orderflow information is quite profitable and more detailed access is possibly profitable; both privileges seem to enhance market performance slightly. By contrast, privileged marketmaking is extremely profitable and greatly impairs market performance.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 28 , Issue 4 , December 1993 , pp. 515 - 534
Copyright
Copyright © School of Business Administration, University of Washington 1993

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