RFS Advance Access originally published online on January 22, 2007
Review of Financial Studies 2007 20(4):1183-1218; doi:10.1093/revfin/hhm001
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Walrasian Tâtonnement Auctions on the Tokyo Grain Exchange
Rutgers, The State University of New Jersey
University of California at Davis
Address correspondence to Jeffrey Williams, Department of Agricultural and Resource Economics, University of California, One Shields Ave., Davis, CA 95616-8512, or e-mail: williams{at}primal.ucdavis.edu
JEL: D44, D53, G13, G14, Q13
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Abstract |
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The Tokyo Grain Exchange (TGE)’s itayose mechanism provides the opportunity to analyze functioning Walrasian tâtonnement auctions (WTA). In 15,677 auctions conducted over 1997–1998 for corn and redbean futures contracts, price formation is unexpectedly similar to that observed in continuous double auctions. Provisional prices and pledges are informative. In contrast to behavior observed in experiments, few pledges are deceptive, because the traders participate repeatedly and because the auctioneer has flexibility when changing the provisional price and ending the auction. Both the risk of the auction ending and the more equitable dispersion of information increase depth and the speed at which information is embodied in price.
We would like to thank many people at the Tokyo Grain Exchange: Messrs. Takao Morizane, Masanori Hayashi, and Itsuji Yanagisawa who encouraged our research; Messrs. Hidetoshi Hamada, Kunimitsu Ito, Yoshihiko Shiina, and Masahiro Yamashita who arranged interviews with traders and auctioneers; Messrs. Masato Kobayashi and Hideyuki Yamada who retrieved the electronic transcripts; and Messrs. Osamu Akimoto, Toshihiro Hirayama, Hideki Nakamichi, and Mikio Suzuki who explained their approach as auctioneers. For help on the VAR estimation, we would like to thank Sandeep Mohapatra.