Events at CERGE-EI

Dissertation Committee:
Andreas Ortmann (chair)
Jan Hanousek (local chair)
Avner Shaked
Petr Zemčík

Abstract:

The thesis is motivated by the behavior of traders on stock markets, how they compete, and what the results of that competition are. I describe the effects of trading competition and costs empirically and theoretically, and the third chapter studies a related problem experimentally. In the first chapter, I study the intraday development of bid-ask spreads on stock exchanges. I show that the bid-ask spread decreases rapidly towards the end of the trading day on Czech markets. When a similar analysis is performed on NASDAQ-listed shares a similar phenomenon is found though it is much weaker. The second chapter deals with oligopolistic competition to reveal possible reasons for the declining bid-ask spread phenomenon. I show that when there is a mix of buyers informed and uninformed about the prices posted by a small group of sellers, all sellers mix their prices according to a specified formula, and this equilibrium is unique. The result can justify a positive bid-ask spread, its stochastic nature and the declining pattern. The third chapter (with Ondřej Rydval and Andreas Ortmann) is related to the bounded rationality of traders or the players of a game. We study three very simple dominance-solvable games and show that only one third of the subjects solve them correctly. Linking the performance in the experiment to their cognitive abilities and personality traits, we found that reasoning errors are more likely for subjects with lower working memory, intrinsic motivation and a premeditation attitude.

Full Text: “Essays on Market Competition, Trading Costs and Laboratory Asset Markets” by Michal Ostatnický