Simple Market Protocols for Efficient Risk Sharing
This paper studies the performance of four market protocols with egard to allocative efficiency and other performance criteria such as volume or volatility. We examine batch auctions, continuous double auctions, specialist dealerships, and a hybrid of these last two. All protocols are practically implementable because the messages that traders need to use are simple. We test the protocols by running (computerized) experiments in an environment that controls for tradersÕ behavior and rules out any informational effect. We find that all protocols generically converge to the efficient allocation in finite time. An extended comparison over other performance criteria produces no clear winner, but the presence of a specialist is associated with the best all-round performance.
|Date of creation:||Jul 2006|
|Date of revision:|
|Publication status:||Published in Journal of Economic Dynamics and Control 31, 2007, 3568-3590|
|Contact details of provider:|| Postal: Dorsoduro, 3825/E, 30123 Venezia|
Phone: ++39 041 2346910-6911
Fax: ++ 39 041 5221756
Web page: http://www.dma.unive.it/
More information through EDIRC
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.:
- Nicolas Audet & Toni Gravelle & Jing Yang, 2002. "Alternative Trading Systems: Does One Shoe Fit All?," Staff Working Papers 02-33, Bank of Canada.
- Marco LiCalzi & Paolo Pellizzari, 2002.
"Fundamentalists Clashing over the Book: A Study of Order-Driven Stock Markets,"
0207001, EconWPA, revised 04 Mar 2003.
- Marco Licalzi & Paolo Pellizzari, 2003. "Fundamentalists clashing over the book: a study of order-driven stock markets," Quantitative Finance, Taylor & Francis Journals, vol. 3(6), pages 470-480.
- Bottazzi, Giulio & Dosi, Giovanni & Rebesco, Igor, 2005. "Institutional architectures and behavioral ecologies in the dynamics of financial markets," Journal of Mathematical Economics, Elsevier, vol. 41(1-2), pages 197-228, February.
- Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975.
"A Stochastic Decentralized Resource Allocation Process: Part II,"
Econometric Society, vol. 43(3), pages 363-93, May.
- Hurwicz, Leonid & Radner, Roy & Reiter, Stanley, 1975. "A Stochastic Decentralized Resource Allocation Process: Part I," Econometrica, Econometric Society, vol. 43(2), pages 187-221, March.
- Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
- Richard H. Thaler & Eric J. Johnson, 1990. "Gambling with the House Money and Trying to Break Even: The Effects of Prior Outcomes on Risky Choice," Management Science, INFORMS, vol. 36(6), pages 643-660, June.
- Marco LiCalzi & Paolo Pellizzari, 2006. "The allocative effectiveness of market protocols under intelligent trading," Working Papers 134, Department of Applied Mathematics, Università Ca' Foscari Venezia.
- Madhavan, Ananth, 2000. "Market microstructure: A survey," Journal of Financial Markets, Elsevier, vol. 3(3), pages 205-258, August.
- S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
- Tymon Tatur, 2005. "On the Trade off Between Deficit and Inefficiency and the Double Auction with a Fixed Transaction Fee," Econometrica, Econometric Society, vol. 73(2), pages 517-570, 03.
- Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
- Glosten, Lawrence R. & Milgrom, Paul R., 1985.
"Bid, ask and transaction prices in a specialist market with heterogeneously informed traders,"
Journal of Financial Economics,
Elsevier, vol. 14(1), pages 71-100, March.
- Lawrence R. Glosten & Paul R. Milgrom, 1983. "Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders," Discussion Papers 570, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Mark A. Satterthwaite & Steven R. Williams, 2002. "The Optimality of a Simple Market Mechanism," Econometrica, Econometric Society, vol. 70(5), pages 1841-1863, September.
When requesting a correction, please mention this item's handle: RePEc:vnm:wpaper:136. 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: (Marco LiCalzi)
If references are entirely missing, you can add them using this form.