Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

34 Pages Posted: 30 Apr 2019 Last revised: 13 Nov 2019

See all articles by Cary A. Deck

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies

Maroš Servátka

Macquarie Graduate School of Management - MGSM Experimental Economics Laboratory

Steven James Tucker

University of Waikato Management School - Economics

Date Written: August 28, 2019

Abstract

The bubble and burst pattern in asset markets is among the most replicable results in experimental economics. Using controlled laboratory experiments, we compare mispricing in markets organized by standard double auction rules with mispricing in markets organized two alternative sets clock auctions. The double Dutch auction, shown to be more efficient than the double auction in past commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in a declining fundamental value environment with an increasing cash-to-asset ratio.

Keywords: Asset Markets, Experimental Economics, Institutional Design

JEL Classification: C91, D02, D14, G12

Suggested Citation

Deck, Cary A. and Servátka, Maroš and Tucker, Steven James, Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best? (August 28, 2019). Available at SSRN: https://ssrn.com/abstract=3348134 or http://dx.doi.org/10.2139/ssrn.3348134

Cary A. Deck

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Maroš Servátka (Contact Author)

Macquarie Graduate School of Management - MGSM Experimental Economics Laboratory ( email )

Sydney
Australia

Steven James Tucker

University of Waikato Management School - Economics ( email )

Hamilton
New Zealand

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