Off-floor trading, disintegration and the bid-ask spread in experimental markets

Campbell, Joseph; LaMaster, Shawn; Smith, Vernon L.; Boening, Mark Van

doi:10.1016/0167-6687(93)91053-w

Cited by 4 publications

(5 citation statements)

References 4 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…8 Surprisingly, however, very few contributions have combined the experimental investigation of actual trading behavior with the analysis of the choice of the trading institution for a given good. One notable exception is Campbell et al (1991), which investigated the endogenous choice between a computerized doubleauction market (with an auctioneer) and (illegal) off-floor trading in the context of stock markets, and its impact on the bid-ask spread. The latter was implemented as direct negotiations, specifically traders could submit direct offers for blocks of three units to their two neighboring traders of the other market side.…”

Section: Introductionmentioning

confidence: 99%

“…Trade can be conducted in two alternative institutions. The first captures centralized markets through a sealed-bid double auction with a single market clearing price (as in Campbell et al 1991, computed by an auctioneer). The second captures direct negotiations through bilateral matching, where the matching was designed as to maximize trade.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Do traders learn to select efficient market institutions?

2021

View full text Add to dashboard Cite

When alternative market institutions are available, traders have to decide both where and how much to trade. We conducted an experiment where traders decided first whether to trade in an (efficient) double-auction institution or in a posted-offers one (favoring sellers), and second how much to trade. When sellers face decreasing returns to scale (increasing production costs), fast coordination on the double-auction occurs, with the posted-offers institution becoming inactive. In contrast, under constant returns to scale, both institutions remain active and coordination is slower. The reason is that sellers trade off higher efficiency in a market with dwindling profits for biased-up profits in a market with vanishing customers. Hence, efficiency alone might not be sufficient to guarantee coordination on a single market institution if the surplus distribution is asymmetric. Trading behavior approaches equilibrium predictions (market clearing) within each institution, but switching behavior across institutions is explained by simple rules of thumb, with buyers chasing low prices and sellers considering both prices and trader ratios.

show abstract

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Do traders learn to select efficient market institutions?

2021

View full text Add to dashboard Cite

show abstract

“…Departing from formal modeling, Campbell et al (1991) examine off-market trading using experiments that incorporate search. In particular, they introduce an off-floor alternative to determine conditions under which off-floor trading might occur.…”

Section: Introductionmentioning

confidence: 99%

Is There Private Information in the FX Market? The Tokyo Experiment

Ito¹,

Lyons²,

Melvin³

1997

103

111

View full text Add to dashboard Cite

It is a common view that private information in the foreign exchange market does not exist. We provide evidence against this view. The evidence comes from the introduction of trading in Tokyo over the lunch-hour. Lunch return variance doubles with the introduction of trading, which cannot be due to public information since the flow of public information did not change with the trading rules. Having eliminated public information as the cause, we exploit the volatility pattern over the whole day to discriminate between the two alternatives: private information and pricing errors. Three key results support the predictions of private-information models. First, the volatility U-shape flattens: greater revelation over lunch leaves a smaller share for the morning and afternoon. Second, the U-shape tilts upward, an implication of information whose private value is transitory. Finally, the morning exhibits a clear U-shape when Tokyo closes over lunch, and it disappears when trading is introduced. Abstract Dealers need to search for quotes in many of the world's largest markets (such as spot foreign exchange, US government bonds, and the London Stock Exchange). This search affects trading cost. We estimate the share of total trading cost attributable to search. Our experiments show that the share is large-roughly one-third of the effective spread. Past work on estimating spread components typically omits the search component. Our estimates suggest this omission is important.

show abstract

“…Experimental literature on the endogenous choice among different market forms is almost non existent. Three notable exceptions are the papers by Campbell et al (1991), Brown et al (2002), and Kirchsteiger et al (1999). Campbell et al (1991 study the extent of off-ßoor trading in an open (not sealed-bid) double-auction market with a bid-ask spread.…”

Section: Marketplacementioning

confidence: 99%

Markets versus negotiations: An experimental investigation

Kugler

Neeman

Vulkan

2006

Games and Economic Behavior

View full text Add to dashboard Cite

We consider the consequences of competition between two types of experimental exchange mechanisms, a "decentralized bargaining" market, and a "centralized" market. The experiment demonstrates that decentralized bargaining is subject to a process of unraveling in which relatively weak traders (buyers with high willingness to pay and sellers with low costs) continuously Þnd trading in the centralized market more attractive until almost no opportunities for mutually beneÞcial trade remain outside the centralized marketplace.Jel Classification numbers: C78, D40, L10.

show abstract

Off-floor trading, disintegration and the bid-ask spread in experimental markets

Cited by 4 publications

References 4 publications

Do traders learn to select efficient market institutions?

Do traders learn to select efficient market institutions?

Is There Private Information in the FX Market? The Tokyo Experiment

Markets versus negotiations: An experimental investigation

Contact Info

Product

Resources

About