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Newtonian Auctioneering

Author

Listed:
  • Dan Sasaki

    (Institute of Economics, University of Copenhagen)

Abstract

This paper explores an algorithm which serves as a market auctioneer under the following constraints: [i] traders arrive randomly and each sales/purchase order should be executed at the currently posted price (sequential service), [ii] the auctioneer need not know the exact fundamental value of the traded asset(s), and [iii] prices depend only upon trade orders, not upon which traders submit them (anonymous traders). The suggested auctioneering algorithm is such that the arrivals of sales and purchase orders affect the acceleration, not directly the first-order increment, of the price. The resulting price path contains both a component due to the fundamental, and a component due to random arrivals of trade orders. Thereby traders’ private information about the fundamental will not be fully revealed by the price realisation even in the long run, because uninformed traders have no means to distinguish between fundamental shocks and arrival shocks in the observed price fluctuation.

Suggested Citation

  • Dan Sasaki, 1997. "Newtonian Auctioneering," CIE Discussion Papers 1997-09, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
    • Handle: RePEc:kud:kuieci:1997-09
    as

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    More about this item

    Keywords

    random arrival; sequential service; price acceleration; information diffusion;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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