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

American Economic Journal: Microeconomics, 2017, 9(4): 1-41

California Institute of Technology Social Science Working Paper No. 1404

48 Pages Posted: 4 May 2015 Last revised: 23 Oct 2017

See all articles by Charles R. Plott

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences

Kirill Pogorelskiy

University of Warwick - Department of Economics

Date Written: October 28, 2016

Abstract

We 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.

Keywords: call market exchange, experiments, market jaws, Newton

JEL Classification: C92, D41, D44, G14

Suggested Citation

Plott, Charles R. and Pogorelskiy, Kirill, Call Market Experiments: Efficiency and Price Discovery Through Multiple Calls and Emergent Newton Adjustments (October 28, 2016). American Economic Journal: Microeconomics, 2017, 9(4): 1-41; California Institute of Technology Social Science Working Paper No. 1404. Available at SSRN: https://ssrn.com/abstract=2602034 or http://dx.doi.org/10.2139/ssrn.2602034

Charles R. Plott (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
337 Baxter Hall
Pasadena, CA 91125
United States
626-395-4209 (Phone)

Kirill Pogorelskiy

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom

HOME PAGE: http://warwick.ac.uk/kbp

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