Call Market Experiments: Efficiency and Price Discovery Through Multiple Calls and Emergent Newton Adjustments
American Economic Journal: Microeconomics, 2017, 9(4): 1-41
California Institute of Technology Social Science Working Paper No. 1404
48 Pages Posted: 4 May 2015 Last revised: 23 Oct 2017
Date Written: October 28, 2016
Abstract
We study multiple-unit, laboratory experimental call markets in which orders are cleared by a single price at a scheduled "call." The markets are independent trading "days" with two calls each day preceded by a continuous and public order flow. Markets approach the competitive equilibrium over time. The price formation dynamics operate through the flow of bids and asks configured as the "jaws" of the order book with contract execution featuring elements of an underlying mathematical principle, the Newton-Raphson method for solving systems of equations. Both excess demand and its slope play a systematic role in call market price discovery.
Keywords: call market exchange, experiments, market jaws, Newton
JEL Classification: C92, D41, D44, G14
Suggested Citation: Suggested Citation