'J'-shaped returns to timing advantage in access to information - Experimental evidence and a tentative explanation

The question of how useful information is in financial markets has been discussed for decades and is still unresolved. In this paper, we challenge the widely held belief that additional information is never a disadvantage. We present results from experimental financial markets with asymmetrically informed traders. In all treatments we conduct we find a 'J'-shaped distribution of returns: while the best informed outperform all others, average informed traders have significantly lower returns than the least informed. This can mainly be attributed to trend reversals in the fundamental information. Prices in our markets do not reflect REE, but rather 'naïve trader' equilibrium.