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Circuit Breakers with Uncertainty about the Presence of Informed Agents: I Know What You Know … I Think
Author(s) -
Ackert Lucy F.,
Church Bryan K.,
Jayaraman Narayanan
Publication year - 2005
Publication title -
financial markets, institutions and instruments
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 23
eISSN - 1468-0416
pISSN - 0963-8008
DOI - 10.1111/j.0963-8008.2005.00082.x
Subject(s) - allocative efficiency , circuit breaker , private information retrieval , asset (computer security) , value (mathematics) , economics , business , need to know , microeconomics , financial economics , actuarial science , computer science , engineering , computer security , electrical engineering , machine learning
This study conducts experimental asset markets to examine the effects of circuit breaker rules on market behavior when agents are uncertain about the presence of private information. Our results unequivocally indicate that circuit breakers fail to temper unwarranted price movements in periods without private information. Agents appear to mistakenly infer that others possess private information, causing price to move away from fundamental value. Allocative efficiencies in our markets are high across all regimes. Circuit breakers perform no useful function in our experimental asset markets.