Off-Floor Trading, Disintegration and the Bid-Ask Spread in Experimental Markets

Authors

Joseph Campbell, University of Arizona
Shawn LaMaster, University of Mississippi
Vernon L. Smith, Chapman UniversityFollow
Mark Van Boening, University of MississippiFollow

Document Type

Article

Publication Date

1991

Abstract

This article uses experimental methods to establish that greater uncertainty in the environment increases the naturally emerging bid-ask spread in double-auction trading. The opportunity to trade off floor is then introduced. Off-floor trading is greater in the environment with a wider bid-ask spread, increases with block trading, and increases still more with increasing subject experience. Finally, we find that the preponderance of off-floor trades are inside the bid-ask spread, supporting the hypothesis that a motive for such trades is to split privately the gain represented by the bid-ask spread without revealing publicly a willingness to make price concessions.

Comments

This article was originally published in Journal of Business, volume 64, issue 4, in 1991.

Recommended Citation

Campbell, Joseph, Shawn LaMaster, Vernon L. Smith, and Mark Van Boening. “Off-Floor Trading, Disintegration and the Bid-Ask Spread in Experimental Markets." Journal of Business, 64.4 (1991): 495-522.

Peer Reviewed

1

Copyright

University of Chicago