IDEAS home Printed from https://ideas.repec.org/p/tse/wpaper/21924.html
   My bibliography  Save this paper

Equilibrium Discovery and Preopening Mechanisms in an Experimental Market

Author

Listed:
  • Biais, Bruno
  • Bisière, Christophe
  • Pouget, Sébastien

Abstract

We experimentally analyze equilibrium discovery in i) a pure call auction, ii) a call auction preceded by a nonbinding preopening period, and iii) a call auction preceded by a binding preopening period. We examine whether a preopening period can facilitate coordination on the Pareto dominant equilibrium. During the nonbinding preopening period, traders tend to place manipulative orders. After observing such orders, participants learn to distrust cheap talk and coordinate less on Pareto dominant outcomes. In contrast, we find that, when preopening orders are binding, they improve the ability to coordinate on high gains from trade.

Suggested Citation

  • Biais, Bruno & Bisière, Christophe & Pouget, Sébastien, 2009. "Equilibrium Discovery and Preopening Mechanisms in an Experimental Market," TSE Working Papers 09-001, Toulouse School of Economics (TSE).
  • Handle: RePEc:tse:wpaper:21924
    as

    Download full text from publisher

    File URL: http://www.tse-fr.eu/sites/default/files/medias/doc/wp/fit/wp_fit_1_2009.pdf
    File Function: Full text
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kenneth Clark & Stephen Kay & Martin Sefton, 2001. "When are Nash equilibria self-enforcing? An experimental analysis," International Journal of Game Theory, Springer;Game Theory Society, vol. 29(4), pages 495-515.
    2. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, vol. 80(1), pages 234-248, March.
    3. Charness, Gary, 2000. "Self-Serving Cheap Talk: A Test Of Aumann's Conjecture," Games and Economic Behavior, Elsevier, vol. 33(2), pages 177-194, November.
    4. Forsythe, Robert & Lundholm, Russell & Rietz, Thomas, 1999. "Cheap Talk, Fraud, and Adverse Selection in Financial Markets: Some Experimental Evidence," Review of Financial Studies, Society for Financial Studies, vol. 12(3), pages 481-518.
    5. Schmidt, David & Shupp, Robert & Walker, James M. & Ostrom, Elinor, 2003. "Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play," Games and Economic Behavior, Elsevier, vol. 42(2), pages 281-299, February.
    6. Crawford, Vincent P, 1995. "Adaptive Dynamics in Coordination Games," Econometrica, Econometric Society, vol. 63(1), pages 103-143, January.
    7. Crawford, Vincent, 1998. "A Survey of Experiments on Communication via Cheap Talk," Journal of Economic Theory, Elsevier, vol. 78(2), pages 286-298, February.
    8. Crawford, Vincent P & Haller, Hans, 1990. "Learning How to Cooperate: Optimal Play in Repeated Coordination Games," Econometrica, Econometric Society, vol. 58(3), pages 571-595, May.
    9. Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
    10. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    11. Marco Pagano, 1989. "Trading Volume and Asset Liquidity," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 255-274.
    12. Blume, Andreas & Ortmann, Andreas, 2007. "The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria," Journal of Economic Theory, Elsevier, vol. 132(1), pages 274-290, January.
    13. Davies, Ryan J., 2003. "The Toronto Stock Exchange preopening session," Journal of Financial Markets, Elsevier, vol. 6(4), pages 491-516, August.
    14. Bruno Biais & Pierre Hillion & Chester Spatt, 1999. "Price Discovery and Learning during the Preopening Period in the Paris Bourse," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1218-1248, December.
    15. Joseph Farrell, 1987. "Cheap Talk, Coordination, and Entry," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 34-39, Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chakraborty, Archishman & Pagano, Michael S. & Schwartz, Robert A., 2012. "Order revelation at market openings," Journal of Financial Markets, Elsevier, vol. 15(2), pages 127-150.
    2. Calcagno, Riccardo & Sugaya, Takuo & Kamada, Yuichiro & Lovo, Stefano, 2014. "Asynchronicity and coordination in common and opposing interest games," Theoretical Economics, Econometric Society, vol. 9(2), May.
    3. Laurence Lescourret, 2012. "Non-fundamental Information and Market-makers' Behavior during the NASDAQ Preopening Session," Post-Print hal-00772798, HAL.
    4. repec:oup:rcorpf:v:6:y:2017:i:1:p:68-101. is not listed on IDEAS
    5. Stefano Lovo, 2009. "Preopening and equilibrium selection," Post-Print hal-00495940, HAL.
    6. Silvio John Camilleri, 2015. "The Impact of Stock Market Structure on Volatility: Evidence from a Call Auction Suspension," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 6(2), pages 44-53, April.
    7. Roy, Nilanjan, 2017. "Action revision, information and collusion in an experimental duopoly market," MPRA Paper 77033, University Library of Munich, Germany.
    8. Moshirian, Fariborz & Nguyen, Huong Giang (Lily) & Pham, Peter Kien, 2012. "Overnight public information, order placement, and price discovery during the pre-opening period," Journal of Banking & Finance, Elsevier, vol. 36(10), pages 2837-2851.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tse:wpaper:21924. 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: (). General contact details of provider: http://edirc.repec.org/data/tsetofr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.