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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. (2004) On the Microstructure of Price Determination and Information Aggregation with Sequential and Asymmetric Information Arrival in an Experimental Asset Market. Social Science Working Paper, 1204. California Institute of Technology , Pasadena, CA. https://resolver.caltech.edu/CaltechAUTHORS:20171102-144437386

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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:Report or Paper (Working Paper)
Related URLs:
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http://resolver.caltech.edu/CaltechAUTHORS:20140128-114712217Related ItemLater version published in Annals of Finance
Additional Information: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. Of course, responsibility for errors resides with the authors. Published as 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.
Group:Social Science Working Papers
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
Series Name:Social Science Working Paper
Issue or Number:1204
Classification Code:JEL: D4, G10, C92, D44, D82
Record Number:CaltechAUTHORS:20171102-144437386
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20171102-144437386
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82908
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:03 Nov 2017 17:27
Last Modified:03 Oct 2019 19:00

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