The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Quotes, Prices, and Estimates in a Laboratory Market
Published: 12/01/1996 | DOI: 10.1111/j.1540-6261.1996.tb05226.x
ROBERT BLOOMFIELD
This study examines the behavior of laboratory markets in which two uninformed market makers compete to trade with heterogeneously informed investors. The data provide three main results. First, market makers set quotes to protect against adverse selection and to control inventory. Second, when investors are less well‐informed, their trades are less reliable measures of their information, and market makers respond to those trades with greater skepticism. Third, errors in market makers' reactions to trades cause the time‐series behavior of quotes and prices to depend on the information environment in ways beyond those captured in extant theory.
Hidden Liquidity: Some New Light on Dark Trading
Published: 05/20/2015 | DOI: 10.1111/jofi.12301
ROBERT BLOOMFIELD, MAUREEN O'HARA, GIDEON SAAR
Using a laboratory market, we investigate how the ability to hide orders affects traders’ strategies and market outcomes in a limit order book environment. We find that order strategies are greatly affected by allowing hidden liquidity, with traders substituting nondisplayed for displayed shares and changing the aggressiveness of their trading. As traders adapt their behavior to the different opacity regimes, however, most aggregate market outcomes (such as liquidity and informational efficiency) are not affected as much. We also find that opacity appears to increase the profits of informed traders but only when their private information is very valuable.
Momentum, Reversal, and Uninformed Traders in Laboratory Markets
Published: 11/25/2009 | DOI: 10.1111/j.1540-6261.2009.01510.x
ROBERT J. BLOOMFIELD, WILLIAM B. TAYLER, FLORA (HAILAN) ZHOU
We report the results of three experiments based on the model of Hong and Stein (1999). Consistent with the model, the results show that when informed traders do not observe prices, uninformed traders generate long‐term price reversals by engaging in momentum trade. However, when informed traders also observe prices, uninformed traders generate reversals by engaging in contrarian trading. The results suggest that a dominated information set is sufficient to account for the contrarian behavior observed among individual investors, and that uninformed traders may be responsible for long‐term price reversals but play little role in driving short‐term momentum.