Equilibrium Discovery and Preopening Mechanisms in an Experimental Market

Bruno Biais, Christophe Bisière and Sébastien Pouget ()
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Sébastien Pouget: Toulouse School of Economics (Institut d'Administration des Entreprises, Institut d'Économie Industrielle, Centre de Recherche en Management), Université Toulouse 1 Capitole, 31000 Toulouse, France

Management Science, 2014, vol. 60, issue 3, 753-769

Abstract: We experimentally analyze how to design preopening mechanisms facilitating coordination on high equilibrium liquidity and gains from trade. We allow a call auction to be preceded by a preopening or not, preopening orders to be binding or not, and the opening time to be deterministic or random. When the preopening is nonbinding, traders place manipulative orders, reducing the credibility of preplay communication. Random market opening deters manipulation, but also hinders communication by making it costly. Gains from trade are maximized when preopening orders are binding. This enables some traders to place early limit orders, attracting further liquidity.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1787 . This paper was accepted by Wei Xiong, finance.

Keywords: cheap talk; experimental markets; equilibrium discovery; preopening period; preplay communication (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (15)

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http://dx.doi.org/10.1287/mnsc.2013.1787 (application/pdf)

Related works:
Working Paper: Equilibrium Discovery and Preopening Mechanisms in an Experimental Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:3:p:753-769

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