This research explores one possible explanation for market efficiency, the Marginal Trader Hypothesis (MTH), which holds that a small group of active and well-informed traders are responsible for steering market price to efficient levels. We test the appropriateness of the MTH by conducting a series of experimental asset markets; information regarding the asset’s value was introduced to the markets so as to evaluate the impact on market efficiency and the role of the "insider" in steering market price. The results indicate that traders conformed to the median of three possible values, though prices failed to converge to a Rational Expectations equilibrium.
McManus, Thomas Clay and Blackwell, Calvin
"An Exploration of Market Efficiency and the Marginal Trader Hypothesis,"
Undergraduate Economic Review: Vol. 7
, Article 9.
Available at: http://digitalcommons.iwu.edu/uer/vol7/iss1/9