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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. In this study, in addition to Call Market and Double Auction, we employ the Tatonnement trading institution, which has not been previously explored in laboratory asset markets, despite its historical and contemporary relevance. The results show that bubbles are significantly smaller in either Tatonnement or Tatonnement and Call Market combined than in Double Auction, suggesting that trading institutions play a crucial role in the formation of bubbles. We provide a heterogeneous agent model with fundamental and myopic-noise traders to better understand these results. We calibrate the parameters of the model using experimental data from the Tatonnement trading institution. The model captures some critical patterns of the data, as we find that bubbles are more prominent in Double Auctions than in other trading institutions.
From:
Volodymyr Lugovskyy
Indiana University
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. In this study, in addition to Call Market and Double Auction, we employ the Tatonnement trading institution, which has not been previously explored in laboratory asset markets, despite its historical and contemporary relevance. The results show that bubbles are significantly smaller in either Tatonnement or Tatonnement and Call Market combined than in Double Auction, suggesting that trading institutions play a crucial role in the formation of bubbles. We provide a heterogeneous agent model with fundamental and myopic-noise traders to better understand these results. We calibrate the parameters of the model using experimental data from the Tatonnement trading institution. The model captures some critical patterns of the data, as we find that bubbles are more prominent in Double Auctions than in other trading institutions.
From:
Volodymyr Lugovskyy
Indiana University