Off-Floor Trading, Disintegration, and the Bid-Ask Spread in Experimental Markets

Joseph Campbell, Shawn LaMaster, Vernon Smith () and Mark Van Boening

The Journal of Business, 1991, vol. 64, issue 4, 495-522

Abstract: This article uses experimental methods to establish that greater uncertainty in the environment increases the naturally emerging bid-ask spread in double-auction trading. The opportunity to trade off floor is then introduced. Off-floor trading is greater in the environment with a wider bid-ask spread, increases with block trading, and increases still more with increasing subject experience. Finally, the authors find that the preponderance of off-floor trades are inside the bid-ask spread, supporting the hypothesis that a motive for such trades is to split privately the gain represented by the bid-ask spread without revealing publicly a willingness to make price concessions. Coauthors are Shawn LaMaster, Vernon L. Smith, and Mark Van Boening. Copyright 1991 by University of Chicago Press.

Date: 1991
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