Experiments on Electronic Double Auctions and Abnormal Trades
Lucy Ackert (),
Lei Jiang () and
Li Qi ()
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Lei Jiang: School of Economics and Management, Tsinghua University, Room 328, Weilun Building, Tsinghua, Haidian District, Beijing, 100084, China
Li Qi: Department of Economics, Agnes Scott College, 141 E. College Avenue, Decatur, GA 30030
Southern Economic Journal, 2016, vol. 83, issue 1, 87-104
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 inexperimental 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.
JEL-codes: C92 G1 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:sej:ancoec:v:83:1:y:2016:p:87-104
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