Bubbles, Crashes and Efficiency with Double Auction Mechanisms

Jinpeng Ma; Qiongling Li

Auctions, Market Mechanisms, and Their Applications. Second International ICST Conference, AMMA 2011, NewYork, NY, USA, August 22-23, 2011, Revised Selected Papers

Research Article

Bubbles, Crashes and Efficiency with Double Auction Mechanisms

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@INPROCEEDINGS{10.1007/978-3-642-30913-7_16,
    author={Jinpeng Ma and Qiongling Li},
    title={Bubbles, Crashes and Efficiency with Double Auction Mechanisms},
    proceedings={Auctions, Market Mechanisms, and Their Applications. Second International ICST Conference, AMMA 2011, NewYork, NY, USA, August 22-23, 2011, Revised Selected Papers},
    proceedings_a={AMMA},
    year={2012},
    month={10},
    keywords={Double auction mechanism incremental subgradient method efficient markets hypothesis investors’ sentiment job matching market multiple objects},
    doi={10.1007/978-3-642-30913-7_16}
}

Jinpeng Ma
Qiongling Li
Year: 2012
Bubbles, Crashes and Efficiency with Double Auction Mechanisms
AMMA
Springer
DOI: 10.1007/978-3-642-30913-7_16

Jinpeng Ma¹^,*, Qiongling Li²^,*

1: Rutgers University
2: Rice University

*Contact email: jinpeng@crab.rutgers.edu, ql4@rice.edu

Abstract

We provide a quantitative boundary on the stepsizes of bid and ask of a double auction (DA) mechanism to answer two questions, when the DA mechanism is efficient and when it creates bubbles and crashes. The main result is that the ratio of the two stepsizes and their spread are the key factors for the DA mechanism to be efficient. Sentiment that leads to a swing in the spread and the ratio of the two stepsizes can result in prices to deviate from the intrinsic value equilibrium. These results are derived from a theoretical analysis of the DA mechanism built on the incremental subgradient method in Nedić and Bertsekas (2001).

Keywords: Double auction mechanism incremental subgradient method efficient markets hypothesis investors’ sentiment job matching market multiple objects

Published: 2012-10-08

: http://dx.doi.org/10.1007/978-3-642-30913-7_16