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Experiments on Percolation of Information in Dark Markets

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  • Elena Asparouhova
  • Peter Bossaerts

Abstract

In dark markets, order submissions are bilateral, and transaction prices are known only to the trading counterparties. Here, we study to what extent the information aggregation theory proposed by Duffie and collaborators predicts outcomes in a laboratory version of such markets. We find that prices aggregate the available information but not in the strict sense of the theory, where prices converge exponentially fast to average private signals. Prices instead fluctuate within bands around this average. The band widths reflect, in the best case, the precision of the average signal and, otherwise, the precision of a single private signal.

Suggested Citation

  • Elena Asparouhova & Peter Bossaerts, 2017. "Experiments on Percolation of Information in Dark Markets," Economic Journal, Royal Economic Society, vol. 127(605), pages 518-544, October.
    • Handle: RePEc:wly:econjl:v:127:y:2017:i:605:p:f518-f544
    DOI: 10.1111/ecoj.12464
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    Citations

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    Cited by:

    1. Rud, Olga A. & Rabanal, Jean Paul & Sharifova, Manizha, 2019. "An experiment on the efficiency of bilateral exchange under incomplete markets," Games and Economic Behavior, Elsevier, vol. 114(C), pages 253-267.
    2. Corgnet, Brice & DeSantis, Mark & Porter, David, 2020. "The distribution of information and the price efficiency of markets," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    3. Corgnet, Brice & DeSantis, Mark & Porter, David, 2020. "The distribution of information and the price efficiency of markets," Journal of Economic Dynamics and Control, Elsevier, vol. 110(C).
    4. David G. Green, 2023. "Emergence in complex networks of simple agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(3), pages 419-462, July.
    5. Halim, Edward & Riyanto, Yohanes E. & Roy, Nilanjan & Wang, Yan, 2022. "The Bright Side of Dark Markets: Experiments," MPRA Paper 111803, University Library of Munich, Germany.
    6. Simone Alfarano & Albert Banal-Estañol & Eva Camacho & Giulia Iori & Burcu Kapar & Rohit Rahi, 2024. "Centralized vs Decentralized Markets: The Role of Connectivity," Working Papers 1420, Barcelona School of Economics.
    7. Marco Mantovani & Antonio Filippin, 2024. "When do prediction markets return average beliefs? Experimental evidence," Working Papers 532, University of Milano-Bicocca, Department of Economics.
    8. Artem Stopochkin & Inessa Sytnik & Janusz Wielki & Nataliia Zemlianska, 2021. "Methodology for Building Trader's Investment Strategy Based on Assessment of the Market Value of the Company," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 913-935.

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