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Quotes, Prices, and Estimates in a Laboratory Market

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Author Info
 Bloomfield, Robert
Abstract

This study examines the behavior of laboratory markets in which two uninformed marketmakers compete to trade with heterogeneously informed investors. The data provide three main results. First, marketmakers set quotes to protect against adverse selection and to control inventory. Second, when investors are 1ess well-informed, their trades are less reliable measures of their information, and marketmakers respond to those trades with greater skepticism. Third, errors in marketmakers' reactions to trades cause the time-series behavior of quotes and prices to depend on the information environment in ways beyond those captured in extant theory. Copyright 1996 by American Finance Association.

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Publisher Info
Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 51 (1996)
Issue (Month): 5 (December)
Pages: 1791-1808
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Handle: RePEc:bla:jfinan:v:51:y:1996:i:5:p:1791-1808

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  1. Marco Cipriani & Antonio Guarino, 2005. "Herd Behavior in a Laboratory Financial Market," Experimental 0502002, EconWPA. [Downloadable!]
    Other versions:
  2. Cars Hommes & Joep Sonnemans & Jan Tuinstra & Henk van de Velden, . "Coordination of Expectations in Asset Pricing Experiments," DNB Staff Reports (discontinued) 119, Netherlands Central Bank. [Downloadable!]
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