ICES Experimental Economics Brown Bag Lecture

Disconnecting Financial Markets: Experimental Evidence

Thursday, March 14, 2024 12:00 PM to 1:00 PM EDT
Vernon Smith Hall (formerly Metropolitan Building), Room 5075

The Interdisciplinary Center for Economic Science (ICES) presents an ICES Brown Bag Lecture featuring:

Duan Liu

George Mason University

Disconnecting Financial Markets: Experimental Evidence

 

 

 

Abstract

Assets clear independently in disconnected markets, or jointly in a connected market, depending on the market restrictions. When the disconnected financial market comes with the loss of information, by the prediction of theory, it can outperform the connected market by enhancing risk sharing and diversification. We report data from an experiment to test a disconnected market in relation to a connected market. Our results support the theory that asset traders’ aggressiveness is raised to achieve the inefficiency reduction effect when the market is disconnected, if the market is not competitive enough, and the financial assets are substitutes. We also show that the inefficiency reduction effect due to disconnecting the market is less significant when the market is by itself more competitive. Our results provide insights into the relationship between innovations of trading mechanisms and market characteristics.

 

For more information about the Brown Bag Lectures, please visit the Brown Bag Schedule homepage.

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