Effectiveness of Closing Call Auctions: Evidence from the Taiwan Stock Exchange
AbstractTo reduce market volatility observed at the close of trading and to enhance the fairness of the closing price, the Taiwan Stock Exchange (TSE) changed the way it executed its closing transactions by instituting a five-minute closing call auction. This paper examines the effectiveness of this new mechanism for the TSE. The empirical results show that the closing call has effectively reduced market volatility at closing and enhanced market efficiency by reducing noise in stock closing prices. However, market liquidity has declined, primarily due to the actions of individual investors. Because the limit order book is fully opaque for the five-minute call period, investors may close their position earlier than the closing period to avoid additional risk. This implies that, to maximize the benefits of the closing call, the TSE should provide the transparency of the limit order book for the closing call period.
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Bibliographic InfoArticle provided by M.E. Sharpe, Inc. in its journal Emerging Markets Finance and Trade.
Volume (Year): 44 (2008)
Issue (Month): 3 (May)
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Web page: http://mesharpe.metapress.com/link.asp?target=journal&id=111024
call auction; market microstructure; market quality.;
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- Chuang, Wen-I & Lee, Hsiu-Chuan, 2010. "The Impact of Short-Sales Constraints on Liquidity and the Liquidity-Return Relations," Pacific-Basin Finance Journal, Elsevier, vol. 18(5), pages 521-535, November.
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- John F. Pinfold & Danyang He, 2012. "The impact of introducing a pre-close on the New Zealand share market," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 20(1), pages 99-110, February.
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