Privileged Traders and Asset Market Efficiency: A Laboratory Study

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.

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