Transaction costs and informational cascades in financial markets

Abstract: "We study the effect of transaction costs (e.g., a trading fee or a transaction tax, like the Tobin tax) on the aggregation of private information in financial markets. We implement a financial market with sequential trading and transaction costs in the laboratory. According to theory, eventually all traders neglect their private information and abstain from trading (i.e., a no-trade informational cascade occurs). We find that, in the experiment, informational no-trade cascades occur when theory predicts they should (i.e., when the trade imbalance is sufficiently high). At the same time, the proportion of subjects irrationally trading against their private information is smaller than in a financial market without transaction costs. As a result, the overall efficiency of the market is not significantly affected by the presence of transaction costs." [author's abstract]

Object Details

• Location: Deutsche Nationalbibliothek Frankfurt am Main
• Extent: Online-Ressource
• Language: Englisch
• Notes: Postprint ; begutachtet (peer reviewed) ; In: Journal of Economic Behavior & Organization ; 68 (2008) 3-4 ; 581-592

Classification and Topics

• Classification: Wirtschaft

Contributors, Places and Time

• Event: Veröffentlichung
• (where): Mannheim
• (when): 2008
• Creator: Cipriani, Marco ; Guarino, Antonio

Further information

• DOI: 10.1016/j.jebo.2008.08.001
• URN: urn:nbn:de:0168-ssoar-277443
• Rights: Open Access unbekannt; Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
• Last update: 25.03.2025, 1:43 PM CET