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Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments

Plott, Charles R. and Pogorelskiy, Kirill (2017) Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments. American Economic Journal: Microeconomics, 9 (4). pp. 1-41. ISSN 1945-7669. doi:10.1257/mic.20150201.

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We study multiple-unit, laboratory experimental call markets in which orders are cleared by a single price at a scheduled "call." The markets are independent trading "days" with two calls each day preceded by a continuous and public order flow. Markets approach the competitive equilibrium over time. The price formation dynamics operate through the flow of bids and asks configured as the "jaws" of the order book with contract execution featuring elements of an underlying mathematical principle, the Newton-Raphson method for solving systems of equations. Both excess demand and its slope play a systematic role in call market price discovery.

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Pogorelskiy, Kirill0000-0002-3426-5870
Additional Information:© 2017 American Economic Association. We thank Skylar Cook and Megan Cutrofello, and other students in the Caltech experimental economics class who actively participated in this project in the beginning and contributed to the experimental design. We are grateful to Brian Merlob for helping us monitor the experimental sessions and recording the demonstration video. We express our warm thanks to Pablo Beker, Paul Brewer, Tim Cason, Stefano DellaVigna, David Eil, Dan Friedman, Ben Gillen, Dan Levin, Tibor Neugebauer, Andrew Oswald, Stefan Palan, Tom Palfrey, Charles Sprenger, Rakesh Vohra, Bill Zame, and participants of the 2014 Santa Barbara Conference on Experimental and Behavioral Economics and 2015 Econometric Society World Congress for useful comments. We acknowledge the financial support of the Caltech EEPS laboratory. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. The laboratory experiments received Institutional Review Board approval from Caltech.
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Issue or Number:4
Classification Code:JEL: C92; D41; D44; G14
Record Number:CaltechAUTHORS:20171117-080555217
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Official Citation:Plott, Charles R., and Kirill Pogorelskiy. 2017. "Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments." American Economic Journal: Microeconomics, 9(4): 1-41. DOI: 10.1257/mic.20150201
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:83279
Deposited By: Tony Diaz
Deposited On:20 Nov 2017 19:39
Last Modified:15 Nov 2021 19:56

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