Efficiency of Price Setting Based on a Simple Excess Demand Rule: The Natural Experiment of Czech Voucher Privatization

CERGE-EI Working Paper No. 121

28 Pages Posted: 17 Jun 1998

See all articles by Randall K. Filer

Randall K. Filer

City University of New York, CUNY Hunter College - Department of Economics; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); University of Michigan at Ann Arbor - The William Davidson Institute; CESifo (Center for Economic Studies and Ifo Institute)

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Charles University in Prague; Academy of Sciences of the Czech Republic; Centre for Economic Policy Research (CEPR)

Date Written: December 1997

Abstract

The natural experiment of voucher privatization in the Czech Republic is used to test whether prices that were adjusted in a limited number of discrete steps based primarily on the extent of excess demand or supply are able to fully reflect both public and private information. The eventual market prices are used as a proxy for the underlying true value of the shares in voucher privatization. We find that after two or three price adjustments, public information does not add any predictive power to an equation that uses voucher prices to predict future market prices for all but the smallest shares involved in the process. Similarly, after the early rounds in the process we found that even professional fund managers did not possess private information that enabled them to identify (and bid for) shares that would eventually have greater value than could be predicted from the current voucher prices. Taken as a whole, the results strongly suggest that prices adjusted on the basis of excess demand are able to rapidly incorporate all available information, even when professionals have a strong incentive to attempt to identify and use such information.

JEL Classification: D30, P21

Suggested Citation

Filer, Randall K. and Hanousek, Jan, Efficiency of Price Setting Based on a Simple Excess Demand Rule: The Natural Experiment of Czech Voucher Privatization (December 1997). CERGE-EI Working Paper No. 121, Available at SSRN: https://ssrn.com/abstract=98670 or http://dx.doi.org/10.2139/ssrn.98670

Randall K. Filer (Contact Author)

City University of New York, CUNY Hunter College - Department of Economics ( email )

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University of Michigan at Ann Arbor - The William Davidson Institute

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic
420 2 2400 5119 (Phone)
420 2 2421 1374 (Fax)

HOME PAGE: http://www.cerge-ei.cz

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Academy of Sciences of the Czech Republic ( email )

Narodni 3, 111 42
Praha 1, 117 20
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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