Abstract
This paper focuses on a simple axiom – investors prefer to hold diversified combinations of assets. Arguing that pooling vehicles like mutual funds offer approximate solutions, we propose a portfolio trading mechanism that allows individuals to trade diverse combinations of assets through a single order. Given the complexity of the market mechanism, we construct a prototype of this trading system and test it through a series of laboratory experiments with student subjects. We address the quality of the price discovery process, quality of allocations, and efficiency of the market mechanism. Results from a set of laboratory experiments indicate that the performance of such systems is sensitive to design aspects as well as relative experience of participants.
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Srinivasan, S. Trading Portfolios Electronically – An Experimental Approach. NETNOMICS: Economic Research and Electronic Networking 4, 39–71 (2002). https://doi.org/10.1023/A:1014926929215
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DOI: https://doi.org/10.1023/A:1014926929215