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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.


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

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University of Chicago

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Economics Commons



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