Abstract

http://ssrn.com/abstract=2040609
 
 

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Dynamic Ex Post Equilibrium, Welfare, and Optimal Trading Frequency in Double Auctions


Songzi Du


Simon Fraser University (SFU) - Department of Economics

Haoxiang Zhu


Massachusetts Institute of Technology (MIT) - Sloan School of Management

September 1, 2013


Abstract:     
We characterize a dynamic ex post equilibrium in a sequence of uniform-price double auctions. Bidders start with private inventories, receive over time a sequence of private signals, have interdependent and linearly decreasing marginal values, and trade with demand schedules. In our ex post equilibrium, each bidder's strategy remains optimal even if he would observe the concurrent and historical private information of other bidders; therefore, the ex post equilibrium is robust to distributions of signals and inventories. The equilibrium prices aggregate dispersed private information, and the equilibrium allocations converge to the efficient allocation exponentially over time. The socially optimal trading frequency is low for scheduled arrivals of information but is high for stochastic arrivals of information.

Number of Pages in PDF File: 42

Keywords: dynamic ex post equilibrium, trading frequency, welfare, double auction

JEL Classification: D44, D82, G14

working papers series


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Date posted: April 16, 2012 ; Last revised: September 9, 2013

Suggested Citation

Du, Songzi and Zhu, Haoxiang, Dynamic Ex Post Equilibrium, Welfare, and Optimal Trading Frequency in Double Auctions (September 1, 2013). Available at SSRN: http://ssrn.com/abstract=2040609 or http://dx.doi.org/10.2139/ssrn.2040609

Contact Information

Songzi Du (Contact Author)
Simon Fraser University (SFU) - Department of Economics ( email )
8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
HOME PAGE: http://www.sfu.ca/~songzid
Haoxiang Zhu
Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )
50 MEMORIAL DRIVE
E62-416
Cambridge, MA 02142-1347
United States
HOME PAGE: http://www.mit.edu/~zhuh
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