Equilibrium Discovery and Preopening Mechanisms in an Experimental Market

Biais, Bruno, Bisière, Christophe and Pouget, Sébastien (2014) Equilibrium Discovery and Preopening Mechanisms in an Experimental Market. Management Science, 60 (3).

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Official URL: http://tse-fr.eu/pub/27652

Abstract

We experimentally analyze how to design preopening mechanisms facilitating coordination on high equilibrium liquidity and gains from trade. We allow a call auction to be preceded by a preopening or not, preopening orders to be binding or not, and the opening time to be deterministic or random. When the preopening is non-binding, traders place manipulative orders, reducing the credibility of preplay communication. Random market opening deters manipulation, but also hinders communication by making it costly. Gains from trade are maximized when preopening orders are binding. This enables some traders to place early limit orders, attracting further liquidity.

Item Type: Article
Language: English
Date: March 2014
Refereed: Yes
Uncontrolled Keywords: cheap talk, experimental markets, equilibrium discovery, preopening period, preplay communication
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSM Research (Toulouse), TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:39
Last Modified: 09 Nov 2018 09:20
OAI ID: oai:tse-fr.eu:27652
URI: http://publications.ut-capitole.fr/id/eprint/15739

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