ICES Experimental Economics Brown Bag Lecture
Disconnecting Financial Markets: Experimental Evidence
Friday, October 18, 2024 4:00 PM to 5:00 PM EDT
Vernon Smith Hall (formerly Metropolitan Building), Room 5075
The Interdisciplinary Center for Economic Science (ICES) presents an ICES Brown Bag Lecture featuring:
George Mason University
Disconnecting Financial Markets: Experimental Evidence
Abstract
Upon disconnecting a jointly-clearing connected asset market, we expect the prices to increase and expect the market revenue to be improved because of the raised trading aggressiveness, if substitute risky assets are traded in the market and the market is initially not sufficiently competitive. We report data from laboratory experiments providing test results for the predictions. We find the independently-clearing disconnected market has a significantly higher trading prices compared to the connected market with contingent demand schedules, when the number of traders is small, in other words, when the market is not sufficiently competitive. As the comparison group, when the market is sufficiently competitive, we find no significant trading prices difference between disconnected and connected market. Meanwhile, we find the sellers to hoard the supply when a less competitive market is disconnected, and thereafter less realized trading quantities and unchanged market revenue. Our study provides insights into the importance of considering market characteristics, when facing the decision to promote the market connection or not..
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