Properties of Disequilibrium Adjustment in Double Auction Markets

Abstract

The tendency of double auction markets to converge to the equilibrium of the associated competitive equilibrium model is well known, but the equilibration process is not understood. The reason for adjustment and the processes that are actively involved with the adjustment process are still a mystery. However, the study of many market reported over the years by many different research groups have provided some properties of disequilibria and the dynamics of the adjustment process. Double auction markets have properties that are closely associated with certain institutional and environmental features and have been studied extensively. First, there is a period structure to the markets: an open and a close. Second, major changes, such as parameter changes, occur between the close of one period and the open of the next and this fact is public information. That is, parameter changes do not occur during a period. Third, the commodity traded is like a service that does not have a life of over one period. Redemption values and costs are active for only one period at a time. If the commodity does have a time life- like a security - it will systematically change its value between periods, such as a dividend that is paid at the end of a period. While the discussion that follows does not specifically explore the dynamic of adjustment that occur in other market structures, the properties listed below are characteristic of the asset market that have been studied: speculative markets, and economies characterized by overlapping generation.

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