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

Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?† AbstractThe 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 by two alternative sets of 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 yields 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. (JEL C91, D44, G12) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review: Insights American Economic Association

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

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Publisher
American Economic Association
Copyright
Copyright © 2020 © American Economic Association
ISSN
2640-205X
eISSN
2640-2068
DOI
10.1257/aeri.20190244
Publisher site
See Article on Publisher Site

Abstract

AbstractThe 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 by two alternative sets of 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 yields 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. (JEL C91, D44, G12)

Journal

American Economic Review: InsightsAmerican Economic Association

Published: Jun 1, 2020

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