Speculators Public villains or easy targets

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Speculators Public villains or easy targets?

• Philip Lang
• Aaron Greenberg

2
Hypotheses

• Hypothesis 1 The presence of speculators in a
  double auction market setting will result in a
  less efficient market. In rounds with
  speculators, the difference between the final
  price and the theoretical equilibrium price will
  be greater, it will a take longer time to reach
  the theoretical equilibrium, and there will be a
  less efficient allocation of resources. The
  presence of speculators will increase the number
  of transactions that occur.
• Hypothesis 2 The effect of speculators in a
  market will be amplified as prices reverse in a
  trend.

3
Methodology
Table 1 Speculator vs. Non-speculator periods

• Z-tree
• Double auction with buyers, sellers, speculators
• 2 trial periods, 14 periods of recorded data
• Speculators present in half of the periods
• Equilibrium price shifted from round to round

Note Practice Round Data excluded from
analysis
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Dependent Measures

• Transaction Prices vs. Equilibrium Price
• Convergence to equilibrium
• Allocative efficiency
• Number of transactions

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Transaction Price vs. Equilibrium Price
Note Here we graph the price at which every
transaction occurred each period. In rounds
with speculators present, there is greater
variation in transaction prices.
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Transactions Price vs. Equilibrium Price Continued
Average Deviation from Equilibrium
In rounds 3-8, non-speculator rounds showed less
deviation from the equilibrium price than when
speculators were present
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Early Prices or Ending Prices?
No Speculators
8
Ending Transaction Prices No Difference
Final transaction prices
Ending transaction prices
9
Convergence to equilibrium
Note Here we present bids and asks for each
period. Bid and ask prices appear to converge
much faster in periods when speculators are
present than in periods without speculators.
10
Convergence to equilibrium continued

• We graph bids and asks for periods 9 and 10.
• In both periods the equilibrium prices is 420.
• Notice how much faster bids and asks are
  converging when speculators are present,
• The presence of speculators in this experiment
  does not distort the equilibrium price, but
  rather leads bids and asks to trend toward their
  equilibrium price more quickly.

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Allocative efficiency

• Allocative efficiency refers to the optimal
  distribution of goods.
• Buyers who value the good less than the
  equilibrium price and sellers who have costs
  above the equilibrium price do not transact.
• In every period the maximum allocative efficiency
  based on the distribution of costs and values is
  600

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Allocative efficiency continued

• To analyze efficiency we plotted average
  cumulative gains for the first transaction in
  each period, the second transaction in each
  period, etc.
• We were interested in seeing whether rounds with
  speculators or rounds without speculators more
  quickly approach maximum allocative efficiency.
• The non-speculator line is marginally above the
  speculator line suggesting that rounds without
  speculators were marginally more efficient.

13
Number of Transactions
Table Number of Buys and Sells Controlling for
the Presence of Speculators

• Here we present the number of buys and sells that
  occurred each period.
• We subtract out the number of buys and sells
  speculators make to control for their presence

Speculators
14
Hypothesis 2

• The effect of speculators in a market will be
  amplified as prices reverse in a trend.

Period 9