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

2017 ◽  
Vol 9 (4) ◽  
pp. 1-41 ◽  
Author(s):  
Charles R. Plott ◽  
Kirill Pogorelskiy
Keyword(s):  
Price Discovery ◽  
Competitive Equilibrium ◽  
Market Price ◽  
Price Formation ◽  
Order Book ◽  
Call Markets ◽  
Multiple Unit ◽  
Market Experiments ◽  
Raphson Method ◽  
Call Market

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. (JEL C92, D41, D44, G14)

scholarly journals Neoclassical Supply and Demand, Experiments, and the Classical Theory of Price Formation

2021 ◽  
pp. 37-73
Author(s):  
Sabiou M. Inoua ◽  
Vernon L. Smith
Keyword(s):  
Price Discovery ◽  
Adam Smith ◽  
Supply And Demand ◽  
Market Price ◽  
Price Formation ◽  
Modern Theory ◽  
Collective Interaction ◽  
Large Numbers ◽  
Open Outcry ◽  
Market Experiments

Neoclassical price theory was founded on axioms of price-taking behavior and the law of one price in a market, axioms inconsistent with a theory of endogenous price discovery in markets. Classical economists including Adam Smith narrated a price discovery process based on buyer and seller reservation values and their motivation to buy low and sell high; the classical sketch of price formation offers a quite fruitful foundation for a modern theory of price discovery, supplied below. Market experiments, based on private distributed reservation values and using rules governing open-outcry double auctions, converged endogenously, in three to four periods of repeat interaction, to an efficient outcome. These observations contradicted the widely believed, thought, and taught necessity for perfect information, large numbers, and price-taking behavior. However, these results were consistent with the old, classical, conception of price formation emerging from the collective interaction of the traders. Aggregation and price discovery constitute essential functions of classical markets. We explore the divergence of neoclassical scholars from this classical tradition. Revealingly, in describing the microdynamics of market price formation, prominent neoclassical utilitarians such as Marshall, with his description of a “corn-market in a county town,” and Böhm-Bawerk with his farmers’ horse market, reverted to this classical reservation-value framework.

scholarly journals Classification of position management strategies at the order-book level and their influences on future market-price formation

PLoS ONE ◽  
2019 ◽  
Vol 14 (8) ◽  
pp. e0220645 ◽  
Author(s):  
Takumi Sueshige ◽  
Didier Sornette ◽  
Hideki Takayasu ◽  
Misako Takayasu
Keyword(s):  
Management Strategies ◽  
Market Price ◽  
Price Formation ◽  
Future Market ◽  
Order Book ◽  
Position Management

scholarly journals Price Discovery in Cryptocurrency Markets

2019 ◽  
Vol 109 ◽  
pp. 97-99
Author(s):  
Igor Makarov ◽  
Antoinette Schoar
Keyword(s):  
United States ◽  
Price Discovery ◽  
The United States ◽  
Price Formation ◽  
Significant Heterogeneity ◽  
Local Markets ◽  
The Us ◽  
It Impact

We ask which markets drive bitcoin prices and how price discovery happens across different exchanges. Does the greater exuberance for cryptocurrencies outside the United States affect prices only on local markets or does it impact price formation on global cryptocurrency markets? We document significant heterogeneity in which price formation happens across exchanges and time. When markets are more integrated, shocks to prices on all exchanges contribute to price discovery. However, when markets become segmented, those exchanges that have large arbitrage spreads relative to the US price, i.e. where investors are more exuberant become much less important for price discovery.

Simulation of Market Price Formation as a Game Between Stochastic Automata

1976 ◽  
Vol 98 (1) ◽  
pp. 91-100 ◽  
Author(s):  
Y. M. El-Fattah ◽  
R. Henriksen
Keyword(s):  
Conditional Probability ◽  
A Priori ◽  
Market Price ◽  
Competitive Market ◽  
Price Formation ◽  
Market Conditions ◽  
Reinforcement Scheme ◽  
Stochastic Automata ◽  
Lack Of Information ◽  
Simulation Results

A seller in a free competitive market attempts to optimize his profit by manipulating the price of his commodity. A seller does not know a priori the market conditions such as the conditional probability of the buyers demand, the criteria or even the number of his seller opponents. Subject to this lack of information, the process of market price formation can be simulated as a game between stochastic automata. As time unfolds each seller-automaton learns the market conditions and changes accordingly its price probabilities in view of maximizing its profit. A simple reinforcement scheme is introduced for the design of such automata. The simulation results demonstrate the expediency of the automata behavior.

The effect of universal futures on opening and closing stock market price discovery

2011 ◽  
Vol 28 (4) ◽  
pp. 260-281
Author(s):  
Patricia L. Chelley‐Steeley ◽  
James M. Steeley
Keyword(s):  
Stock Market ◽  
Price Discovery ◽  
Market Price ◽  
Opening And Closing

scholarly journals UNDERSTANDING INDONESIA’S CITY-LEVEL CONSUMER PRICE FORMATION: IMPLICATIONS FOR PRICE STABILITY

2019 ◽  
Vol 22 (4) ◽  
pp. 405-422
Author(s):  
Paresh Kumar Narayan
Keyword(s):  
Price Index ◽  
Price Discovery ◽  
Consumer Price Index ◽  
Price Formation ◽  
Price Stability ◽  
Price Changes ◽  
Monthly Data

Using the Consumer Price Index (CPI) data of 82 Indonesian cities, we propose thehypothesis of heterogeneity in the cities’ contribution to the aggregate IndonesianCPI. Using a price discovery model fitted to monthly data, we discover that (1) of the23 cities in the province of Sumatera, five contribute 44% and nine contribute 66.7%to price changes, and (2) of the 26 cities in Java, four alone contribute 41.6% to pricechanges. Even in smaller provinces, such as Bali and Nusa Tenggara, one city alonedominates the change in aggregate CPI. From these results, we draw implications formaintaining price stability.

scholarly journals A MATHEMATICAL APPROACH TO ORDER BOOK MODELING

2013 ◽  
Vol 16 (05) ◽  
pp. 1350025 ◽  
Author(s):  
FRÉDÉRIC ABERGEL ◽  
AYMEN JEDIDI
Keyword(s):  
Exponential Convergence ◽  
Agent Based Modeling ◽  
Price Formation ◽  
Order Book ◽  
Continuous Time Markov Chain ◽  
Mathematical Study ◽  
Microscopic Description ◽  
Arrival Times ◽  
Agent Based ◽  
Functional Central Limit

Motivated by the desire to bridge the gap between the microscopic description of price formation (agent-based modeling) and the stochastic differential equations approach used classically to describe price evolution at macroscopic time scales, we present a mathematical study of the order book as a multidimensional continuous-time Markov chain and derive several mathematical results in the case of independent Poissonian arrival times. In particular, we show that the cancellation structure is an important factor ensuring the existence of a stationary distribution and the exponential convergence towards it. We also prove, by means of the functional central limit theorem (FCLT), that the rescaled-centered price process converges to a Brownian motion. We illustrate the analysis with numerical simulation and comparison against market data.

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