Newtonian Auctioneering

Dan Sasaki
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Dan Sasaki: Institute of Economics, University of Copenhagen

No 1997-09, CIE Discussion Papers from University of Copenhagen. Department of Economics. Centre for Industrial Economics

Abstract: This paper explores an algorithm which serves as a market auctioneer under the following constraints: [i] traders arrive randomly and each sales/purchase order should be executed at the currently posted price (sequential service), [ii] the auctioneer need not know the exact fundamental value of the traded asset(s), and [iii] prices depend only upon trade orders, not upon which traders submit them (anonymous traders). The suggested auctioneering algorithm is such that the arrivals of sales and purchase orders affect the acceleration, not directly the first-order increment, of the price. The resulting price path contains both a component due to the fundamental, and a component due to random arrivals of trade orders. Thereby traders’ private information about the fundamental will not be fully revealed by the price realisation even in the long run, because uninformed traders have no means to distinguish between fundamental shocks and arrival shocks in the observed price fluctuation.

Keywords: random arrival; sequential service; price acceleration; information diffusion (search for similar items in EconPapers)
JEL-codes: C61 D82 G12 (search for similar items in EconPapers)
Pages: 10 pages
Date: 1997-05
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuieci:1997-09

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