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The Impact of the Suspension of Opening and Closing Call

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Author Info
Silvio John Camilleri (Banking & Finance Dept., FEMA, University of Malta)
Christopher J. Green (Economics Dept., Loughborough University)

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Abstract

A hotly debated issue in the market microstructure literature is the effectiveness of call auctions as against continuous trading systems. In this paper we investigate this issue by studying the impact of the suspension of opening and closing call auctions by the National Stock Exchange of India in 1999. We compare the volatility, efficiency and liquidity (VEL) of securities in the market before and after suspension, and estimate the value of the auctions to traders by carrying out an event study. Contrary to expectation, we find that VEL factors improved following the suspension, and the CARs were significant but were not uniformly positive or negative. As a partial explanation for these results, we find that less liquid stocks traded less in the auctions than did other securities, especially at the opening, and they experienced the most gains following the suspension. This suggests that less liquid stocks did not gain the expected benefits from the auctions, and therefore that it cannot be assumed that a call auction system will improve share trading in a less liquid emerging market. Future research in this area will need to pay attention to the composition of the shares being traded and to the nature of the trading process in different shares in the market.

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Paper provided by EconWPA in its series Finance with number 0411012.

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Length: 37 pages
Date of creation: 08 Nov 2004
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Handle: RePEc:wpa:wuwpfi:0411012

Note: Type of Document - pdf; pages: 37
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Web page: http://129.3.20.41

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Related research
Keywords: Call Auctions; stock markets; National Stock Exchange of India;

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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