This paper uses experimental asset markets to investigate the evolution of liquidity in anelectronic limit order market. Our market setting includes salient features of electronic markets, as well as informed traders and liquidity traders. We focus on the strategies of the traders, andhow these...

In this research we investigate the behavior of noise traders and their impact on the market. We do this in an experimental market setting that allows us to determine not only how noise traders fare in a competitive asset market with other traders, but also how the equilibrium changes if a...

This study uses laboratory experiments to determine the effects of trade and quote disclosure on market efficiency, bid-ask spreads and trader welfare. We show that trade disclosure increases the informational efficiency of transaction prices, but also increases opening bid-ask spreads,...

This study examines the behavior of laboratory markets in which two uninformed market makers compete to trade with heterogeneously informed investors. The data provide three main results. First, market makers set quotes to protect against adverse selection and to control inventory. Second, when...

We report the results of three experiments based on the model of Hong and Stein (1999). Consistent with the model, results show that when informed traders do not observe prices, uninformed traders generate long-term price reversals by engaging in momentum trade. However, when informed traders...

We use a laboratory market to investigate the behavior of noise traders and their impact on the market. Our experiment features informed traders (who possess fundamental information), liquidity traders (who have to trade for exogenous reasons), and noise traders (who do not possess fundamental...

Behavioral finance began as an attempt to understand why financial markets react inefficiently to public information. One stream of behavioral finance examines how psychological forces induce traders and managers to make suboptimal decisions, and how these decisions affect market behavior....

Errors in estimated product costs often lead firms to win business that is unprofitable, because firms are more likely to win business when underestimated product costs lead them to bid below actual cost (Cooper et al. 1992; Stalk and Lachenauer 2004; Hilton 2005). Feedback from repeated competitive...

Firms can effectively take long or short positions on their own equity by holding treasury shares, contributing their shares to their pension fund, write put or call options on their stock, compensate employees with stock options, or invest in other entities (e.g., other firms, stock indexes)...

Analysts and the financial press are often accused of paying too much attention to one another, instead of providing their own independent analyses of fundamental information. Prior research suggests that such mutual observation can render consensus forecasts too extreme, more redundant, and...