Off-equilibrium dynamics in markets

How do prices and quantities adjust in parallel markets?


We have been proposing a Marshallian theory for price and quantity adjustment in parallel continuous double auction markets. We are testing the theory in experiments designed with the CAPM (Capital Asset Pricing Model) in mind. Consistent with the theory, we discover a number of important features of off-equilibrium dynamics. Among others, we find that a particular portfolio performs better (has a higher Sharpe ratio) than the market portfolio.

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