How Trading Institutions Affect Financial Market Performance: Some Laboratory Evidence

The efects of trading institutions on market eficiency and trading volume are examined. The trading institutions are computerized versions of continuous double auction and "clearinghouse" markets. Traders are experienced, profit-motivated undergraduates. The traded good is afinancial asset whose moneta y value is stateand trader type-contingent. Traders possess asymmetric private information on asset value. The results show that clearinghouse markets are as infomationally efficient as double auction markets and almost as allomtionally efficient; the double auction encourages greater trading volume but the clearinghouse provides greater depth; public orderflow information enhances double auction peformance but impairs clearinghouse perjormance.