1. TRADING IN ASSET MARKETS Lab Session Organized by Arie E. Gozluklu

2. Experimental Asset Markets A sequence of markets – 6 min. trading period Shares of a single fictive security – liquidating dividends (payoffs) Initial endowment (grant) changes in each market – different # of shares of single security and cash A unique trading account – profits (losses) accumulate Objective: maximize end-of trading wealth

3. Trader Types Trading targets – No target – Small target, 8 shares / 2 min. buy or sell – Large target, 20 shares/ 2 min. buy or sell Targets change in different markets – But, within each market the same target! Penalty for unfulfilled target – €1000 per target, No partial fulfillment! Group of 7 traders – 3 traders with no targets – 2 traders with small targets (1 buy/1 sell) – 2 traders with large targets (1 buy/1 sell)

4. Information Structure Three states of the world – low, medium, high dividend/share realizations – equally probable – actual state is unknown until market closes All traders have the same information – initial distribution announced before each market Public information release in the middle (180 th second) – either an increase or decrease in dividends – true liquidating dividend distribution

5. Information Structure Example

6. Performance Fresh supply of shares and cash – depends on trader type – changes in each market, no carry-over Bankruptcy rules apply – no short-selling – buying on margin Market Earnings= d*N + C- P – d= true liquidating dividend (payoff) – N= # of shares at the end of each market – C= cash at hand at the end of each market – P= penalty for each unfulfilled target

7. Performance End-of trading wealth – accumulated earnings over all markets in 3 trading sessions – no earnings for the lab and online training session – earnings from a questionnaire Monetary payoff – Exchange rate such that on average 12.5 Euro/hour – Average performance: 35- 37.5 Euro Bonus course grade – Highest quantile: 3 points – 51 th - 80 th percentile: 2 points – 11 th - 50 th percentile: 1 point – Lowest decile: No points

8. Go to: www.marketexper.com access to jMarkets

9. jMarkets Signup - You sign up only once! - You need the same e-mail and password for each login!!!

10. jMarkets Login After you signup once, use this link each time to join the session!

11. jMarkets Login After you signup once, use this link each time to join the session!

12. jMarkets Login

13. Join the Session

14. Click to join, say “yes” and do not close the windows while waiting!

15. If you close and join again

16. Waiting…

17. Still Waiting…

18. Active Markets No trading target! BBO: No order is submitted by clicking! Choose the price level!

19. Active Markets Trading target: if you have no target, this panel will be empty! Time jumps can happen !

20. Sending Orders with Single Share If highlighted, submit one unit! You can cancel your order by one unit

21. Sending Orders with Multiple Shares You can submit more than one unit by clicking on the price level when buy/sell is not highlighted!

22. Offers and Bids Bids are in Blue Offers are in Red

23. Offers and Bids History Orderbook Transaction History

24. Trading Rules Limit, market orders and transactions – offer to sell at a price below or equal to best buy receive the price of the buy order – bid to buy at a price above or equal to best sell pay the price of the sell order Price-time priority rules – Better price executed first – At the same price earlier order executed first No trade with yourself – No purchase at a price higher than own offer – No sale at a price lower than own bid Bankruptcy rules apply

25. Market Types In each session, two types of markets – No-Iceberg markets (only limit and market orders) – Iceberg markets (also Iceberg orders) Iceberg Markets – You can hide a certain portion of the order – 1 unit is always visible (peak size=1) Price-visibility-time priorities apply – Hidden part of the order loses time priority All the other features remain the same!

26. Iceberg Orders You can choose to hide, remember peak size=1!

27. Online Communication Make sure you have Java on your computer! Via Skype – Get a (free) skype account before online training – Add skypename: marketexper to your list – Be online 10 min. before the scheduled trading session Only written communication – No communication with other traders! Only answer to group messages (y/n) Ask questions individually to marketexper If you face connection problems, do not panic! – No worries, I see that on the server side! If time jumps bother you, have your own timer! – Again, it works correctly on the server side!

28. Results During trading you have access to the client-side – Information is indicative Internet connection problems might occur – You can keep tract of your earnings – Server-side information is accurate After trading – All transactions are double-checked – Earnings are recalculated – Always do inform me personally if you face internet problems! Results are posted online – Ranking on the website – Individual trading reports via email