Trading Institutions in Experimental Asset Markets: Theory and Evidence

40 Pages Posted: 23 Nov 2021

See all articles by Bulent Guler

Bulent Guler

Indiana University

Volodymyr Lugovskyy

Indiana University Bloomington - Department of Economics

Daniela Puzzello

Indiana University Bloomington - Department of Economics

Steven James Tucker

University of Waikato Management School - Economics

Date Written: November 20, 2021

Abstract

We report the results of an experiment designed to study the role of trading institutions in the formation of bubbles and crashes in laboratory asset markets. We employ three trading institutions: Call Market, Double Auction, and T\^atonnement. The results show that bubbles are significantly smaller in uniform-price institutions than in Double Auction.
We reproduce this and other critical patterns of the data by calibrating a heterogeneous agent model with fundamental and myopic-noise traders. The model produces larger bubbles under Double Auction because multiple trades occur within a period, amplifying the impact of myopic traders with positive bias on transaction prices.

Keywords: Experimental Asset Markets, Bubbles, Traders' Heterogeneity, Trading Institutions

JEL Classification: C90, C91, D03, G02, G12

Suggested Citation

Guler, Bulent and Lugovskyy, Volodymyr and Puzzello, Daniela and Tucker, Steven James, Trading Institutions in Experimental Asset Markets: Theory and Evidence (November 20, 2021). Available at SSRN: https://ssrn.com/abstract=3968193 or http://dx.doi.org/10.2139/ssrn.3968193

Bulent Guler

Indiana University

Volodymyr Lugovskyy (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Daniela Puzzello

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Steven James Tucker

University of Waikato Management School - Economics ( email )

Hamilton
New Zealand

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
31
Abstract Views
206
PlumX Metrics