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A Speculative Futures Market with Zero-Intelligence

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  • Leanne J Ussher

    ()
    ([1] aDepartment of Economics, Queens College, CUNY, Flushing, New York 11367, USA. [2] bMulti Agent Systems Lagrange Laboratory, ISI Foundation, Turin 10133, Italy.)

Abstract

This paper investigates the price formation of an artificial futures market with zero-intelligence traders. It extends the zero-intelligence model to speculative agents trading for immediacy on a futures exchange with open outcry, margin constraints, and real-time settlement. Like prior studies it finds that the imposition of scarcity, not intelligent optimization, is surprisingly good at producing allocative efficiency. The double auction trading mechanism even with open outcry and real-time settlement anchors prices to a dynamic Walrasian equilibrium, even when it is not unique. This study supports zero-intelligence agent-based methodology as a tool to isolate the impact of market microstructure, as opposed to information, on price formation. Eastern Economic Journal (2008) 34, 518–549. doi:10.1057/eej.2008.34

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Eastern Economic Journal.

Volume (Year): 34 (2008)
Issue (Month): 4 ()
Pages: 518-549

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Handle: RePEc:pal:easeco:v:34:y:2008:i:4:p:518-549

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Cited by:
  1. Lengnick, Matthias & Krug, Sebastian & Wohltmann, Hans-Werner, 2012. "Money creation and financial instability: An agent-based credit network approach," Economics Working Papers 2012-15, Christian-Albrechts-University of Kiel, Department of Economics.
  2. Stephen Kinsella, 2011. "Words to the Wise: Stock Flow Consistent Modeling of Financial Instability," INET Research Notes 19, Institute for New Economic Thinking (INET).

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