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Off-Floor Trading, Disintegration, and the Bid-Ask Spread in Experimental Markets

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  • Campbell, Joseph, et al
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    Abstract

    This article uses experimental methods to establish that greater uncertainty in the environment increases the naturally emerging bid-ask spread in double-auction trading. The opportunity to trade off floor is then introduced. Off-floor trading is greater in the environment with a wider bid-ask spread, increases with block trading, and increases still more with increasing subject experience. Finally, the authors find that the preponderance of off-floor trades are inside the bid-ask spread, supporting the hypothesis that a motive for such trades is to split privately the gain represented by the bid-ask spread without revealing publicly a willingness to make price concessions. Coauthors are Shawn LaMaster, Vernon L. Smith, and Mark Van Boening. Copyright 1991 by University of Chicago Press.

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    Bibliographic Info

    Article provided by University of Chicago Press in its journal Journal of Business.

    Volume (Year): 64 (1991)
    Issue (Month): 4 (October)
    Pages: 495-522

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    Handle: RePEc:ucp:jnlbus:v:64:y:1991:i:4:p:495-522

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    Web page: http://www.journals.uchicago.edu/JB/

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    Cited by:
    1. Powell, O.R., 2010. "Essays on experimental bubble markets," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4219264, Tilburg University.
    2. Ladley, Dan & Schenk-Hoppé, Klaus Reiner, 2009. "Do stylised facts of order book markets need strategic behaviour?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 817-831, April.
    3. Blennerhassett, Michael & Bowman, Robert G., 1998. "A change in market microstructure: the switch to electronic screen trading on the New Zealand stock exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 261-276, December.
    4. Kugler, Tamar & Neeman, Zvika & Vulkan, Nir, 2006. "Markets versus negotiations: An experimental investigation," Games and Economic Behavior, Elsevier, vol. 56(1), pages 121-134, July.

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