Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments†

Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent... AbstractWe study multiple-unit, laboratory experimental call markets in which orders are cleared by a single price at a scheduled “call.” The markets are independent trading “days” with two calls each day preceded by a continuous and public order flow. Markets approach the competitive equilibrium over time. The price formation dynamics operate through the flow of bids and asks configured as the “jaws” of the order book with contract execution featuring elements of an underlying mathematical principle, the Newton-Raphson method for solving systems of equations. Both excess demand and its slope play a systematic role in call market price discovery. (JEL C92, D41, D44, G14) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7685
D.O.I.
10.1257/mic.20150201
Publisher site
See Article on Publisher Site

Abstract

AbstractWe study multiple-unit, laboratory experimental call markets in which orders are cleared by a single price at a scheduled “call.” The markets are independent trading “days” with two calls each day preceded by a continuous and public order flow. Markets approach the competitive equilibrium over time. The price formation dynamics operate through the flow of bids and asks configured as the “jaws” of the order book with contract execution featuring elements of an underlying mathematical principle, the Newton-Raphson method for solving systems of equations. Both excess demand and its slope play a systematic role in call market price discovery. (JEL C92, D41, D44, G14)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2017

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