Experiments on Electronic Double Auctions and Abnormal Trades
Department
Economics, Finance and Quantitative Analysis
Document Type
Article
Publication Date
1-2016
Embargo Period
7-18-2018
Abstract
The flash crash experienced by U.S. markets in May 2010 provided stark evidence that a large trade can have a powerful influence. We explore the impact of an unusual trade on behavior in experimental bubbles markets. We chose the experimental design proposed by Smith, Suchanek, and Williams (1988) because replication shows it produces markets prone to mispricing. After several rounds of trading, our markets receive a large quantity order at an extreme price. In a standard double auction bubble market, pricing is unaffected by an abnormal order. However, with increased uncertainty about the underlying economic value of the asset, over‐pricing weakens on arrival of a negative price shock.
Journal Title
Southern Economic Journal
Journal ISSN
0038-4038
Volume
83
Issue
1
First Page
87
Last Page
104
Digital Object Identifier (DOI)
10.1002/soej.12124