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Trading institutions in experimental asset markets: Theory and Evidence

Author

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  • Guler, Bulent
  • Lugovskyy, Volodymyr
  • Puzzello, Daniela
  • Tucker, Steven

Abstract

We report the results of an experiment that examines the impact of centralized trading institutions on the formation of bubbles and crashes in laboratory asset markets. We employ three trading institutions: Call Market, Double Auction, and Tâtonnement. The results show that bubbles are significantly smaller in uniform-price institutions than in Double Auction. We reproduce this and other critical patterns of the data by calibrating a parsimonious model with heterogeneous agents with different levels of sophistication, featuring fundamental and myopic traders. The model matches untargeted data moments and produces larger bubbles under Double Auction, consistent with the experimental data. This is because multiple trades occur within a period under this institution, amplifying the impact of myopic traders with a positive bias on transaction prices.

Suggested Citation

  • Guler, Bulent & Lugovskyy, Volodymyr & Puzzello, Daniela & Tucker, Steven, 2025. "Trading institutions in experimental asset markets: Theory and Evidence," European Economic Review, Elsevier, vol. 180(C).
    • Handle: RePEc:eee:eecrev:v:180:y:2025:i:c:s0014292125001989
    DOI: 10.1016/j.euroecorev.2025.105148
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    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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