Inducing liquidity in thin financial markets through combined-value trading mechanisms
Previous experimental research has shown that thin financial markets fail to fully equilibrate, in contrast with thick markets. A specific type of market risk is conjectured to be the reason, namely, the risk of partial execution of desired portfolio rearrangements in a system of parallel, unconnected double auction markets. This market risk causes liquidity to dry up before equilibrium is reached. To verify the conjecture, we organized markets directly as a portfolio trading mechanism, allowing agents to better coordinate their orders across securities. The mechanism is an implementation of the combined-value trading (CVT) system. We present evidence that our portfolio trading mechanism facilitates equilibration to the same extent as thick markets do. Like in thick markets, the emergence of equilibrium pricing cannot be attributed to chance. Inspection of order submission and trade activity reveals that subjects manage to exploit the direct linkages between markets presented by the CVT system.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bossaerts, Peter & Plott, Charles, 2000.
"Basic Principles Of Asset Pricing Theory: Evidence From Large-Scale Experimental Financial Markets,"
CEPR Discussion Papers
2578, C.E.P.R. Discussion Papers.
- Peter Bossaerts & Charles Plott, 2004. "Basic Principles of Asset Pricing Theory: Evidence from Large-Scale Experimental Financial Markets," Review of Finance, Springer, vol. 8(2), pages 135-169.
- Peter Bossaerts & Charles Plott, 2004. "Basic Principles of Asset Pricing Theory: Evidence from Large-Scale Experimental Financial Markets," Review of Finance, European Finance Association, vol. 8(2), pages 135-169.
- Bossaerts, Peter & Plott, Charles R., 2000. "Basic Principles of Asset Pricing Theory: Evidence From Large-Scale Experimental Financial Markets," Working Papers 1070, California Institute of Technology, Division of the Humanities and Social Sciences.
- Bossaerts, Peter & Plott, Charles, 2002. "The CAPM in thin experimental financial markets," Journal of Economic Dynamics and Control, Elsevier, vol. 26(7-8), pages 1093-1112, July.
- Robert J. Shiller & Stefano Athanasoulis, 2001.
"The Significance of the Market Portfolio,"
Yale School of Management Working Papers
ysm133, Yale School of Management.
- Stefano Athanasoulis & Robert J. Shiller, 1997. "The Significance of the Market Portfolio," NBER Technical Working Papers 0209, National Bureau of Economic Research, Inc.
- Stefano G. Athanasoulis & Robert J. Shiller, 1997. "The Significance of the Market Portfolio," Cowles Foundation Discussion Papers 1154, Cowles Foundation for Research in Economics, Yale University.
- Giovanni Cespa, 2001.
"A comparison of stock market mechanisms,"
Economics Working Papers
545, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2003.
- Tauchen, George E. & Gallant, A. Ronald, 1995.
"Which Moments to Match,"
95-20, Duke University, Department of Economics.
- Wohl, Avi & Kandel, Shmuel, 1997. "Implications of an Index-Contingent Trading Mechanism," The Journal of Business, University of Chicago Press, vol. 70(4), pages 471-488, October.
- Avi Wohl, 1997. "The Feasibility of an Index-Contingent Trading Mechanism," Management Science, INFORMS, vol. 43(1), pages 112-121, January.
- Gourieroux, C. & Monfort, A. & Renault, E., 1992.
92.279, Toulouse - GREMAQ.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:46:y:2002:i:9:p:1671-1695. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.