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Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

Author

Listed:
  • Cary Deck

    (University of Alabama and Chapman University)

  • Maroš Servátka

    (Macquarie Graduate School of Management and University of Economics in Bratislava)

  • Steven Tucker

    (University of Waikato)

Abstract

The bubble and burst pattern in asset market experiments is among the most replicable results in experimental economics. Numerous studies have searched for means to reduce this mispricing. Using controlled laboratory experiments, we compare mispricing in standard double auction markets to prices in two clock auctions. The double Dutch auction, shown to be more efficient than the double auction in commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in the common declining fundamental value environment.

Suggested Citation

  • Cary Deck & Maroš Servátka & Steven Tucker, 2019. "Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?," Working Papers in Economics 19/04, University of Waikato.
  • Handle: RePEc:wai:econwp:19/04
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    References listed on IDEAS

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    Cited by:

    1. Coppock, Lee A. & Harper, Daniel Q. & Holt, Charles A., 2021. "Capital constraints and asset bubbles: An experimental study," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 75-88.
    2. Steven Tucker & Yilong Xu, 2020. "Nonspeculative Bubbles Revisited: Speculation Does Matter," Working Papers in Economics 20/09, University of Waikato.

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    More about this item

    Keywords

    asset markets; experimental economics; institutional design;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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