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On the microstructure of price determination and information aggregation with sequential and asymmetric information arrival in an experimental asset market

Barner, Martin and Feri, Francesco and Plott, Charles R. (2005) On the microstructure of price determination and information aggregation with sequential and asymmetric information arrival in an experimental asset market. Annals of Finance, 1 (1). pp. 73-107. ISSN 1614-2446. https://resolver.caltech.edu/CaltechAUTHORS:20140128-114712217

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Abstract

Experiments were conducted on an asset with the structure of an option. The information of any individual is limited, as if only the direction of movement of the option value known for a single period without information of the value from when movement was initiated. However, if all information of all insiders were pooled, the value of the option would be known with certainty. The results are the following: (1) Information becomes aggregated in the prices as if fully informative rational expectations operated; and (2) The mechanism through which information gets into the market is captured by a path dependent process that we term "The Fundamental Coordination Principle of Information Transfer in Competitive Markets". The early contracts tend to be initiated by insiders who tender limit orders. The emergence of bubbles and mirages in the markets are coincident with failures and circumstances that prevent the operation of the "Fundamental Principle."


Item Type:Article
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http://dx.doi.org/10.1007/s10436-004-0005-4DOIArticle
http://link.springer.com/article/10.1007%2Fs10436-004-0005-4PublisherArticle
http://rdcu.be/x4NVPublisherFree ReadCube access
http://resolver.caltech.edu/CaltechAUTHORS:20171102-144437386Related ItemEarlier version published as Social Science Working Paper 1204
Additional Information:© 2005 Springer-Verlag. The financial support of the national science foundation and the Caltech Laboratory for Experimental Economics and Political Science are gratefully acknowledged. The authors have benefited from helpful comments of David Grether, Kerry Back, Ivana Komunjer and Pete Kyle.
Funders:
Funding AgencyGrant Number
NSFUNSPECIFIED
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:microstructure, information, rational expectations experiments, information aggregation, belief formation, bubbles, cascades, mirages
Issue or Number:1
Classification Code:JEL: D4, G10, C92, D44, D82
Record Number:CaltechAUTHORS:20140128-114712217
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20140128-114712217
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:43536
Collection:CaltechAUTHORS
Deposited By: Susan Vite
Deposited On:29 Jan 2014 15:54
Last Modified:03 Oct 2019 06:08

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