The Impact of the Suspension of Opening and Closing Call
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.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ananth N. Madhavan, .
"Trading Mechanisms in Securities Markets,"
Rodney L. White Center for Financial Research Working Papers
16-90, Wharton School Rodney L. White Center for Financial Research.
- Barry, Christopher B. & Brown, Stephen J., 1984. "Differential information and the small firm effect," Journal of Financial Economics, Elsevier, vol. 13(2), pages 283-294, June.
- Kairys, Joseph Jr. & Kruza, Raimonds & Kumpins, Ritvars, 2000. "Winners and losers from the introduction of continuous variable price trading: Evidence from the Riga Stock Exchange," Journal of Banking & Finance, Elsevier, vol. 24(4), pages 603-624, April.
- Amihud, Yakov & Mendelson, Haim, 1987. " Trading Mechanisms and Stock Returns: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 42(3), pages 533-53, July.
- Nicholas Economides & Robert A. Schwartz, 1993.
"Electronic Call Market Trading,"
93-19, New York University, Leonard N. Stern School of Business, Department of Economics.
- Amihud, Yakov & Mendelson, Haim & Murgia, Maurizio, 1990. "Stock market microstructure and return volatility : Evidence from Italy," Journal of Banking & Finance, Elsevier, vol. 14(2-3), pages 423-440, August.
- James G. MacKinnon, 2002. "Bootstrap inference in econometrics," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 615-645, November.
- A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March.
- Yakov Amihud & Haim Mendelson & Beni Lauterbach, 1997. "Market Microstructure and Securities Values: Evidence from the Tel Aviv Stock Exchange," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-004, New York University, Leonard N. Stern School of Business-.
- Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
- J. Cable & K. Holland, 1999. "Modelling normal returns in event studies: a model-selection approach and pilot study," The European Journal of Finance, Taylor & Francis Journals, vol. 5(4), pages 331-341.
- Beni Lauterbach & Meyer Ungar, 1997. "Switching to Continuous Trading and its Impact on Return Behavior and Volume of Trade," Journal of Financial Services Research, Springer, vol. 12(1), pages 39-50, August.
- T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
- Amihud, Yakov & Mendelson, Haim & Lauterbach, Beni, 1997. "Market microstructure and securities values: Evidence from the Tel Aviv Stock Exchange," Journal of Financial Economics, Elsevier, vol. 45(3), pages 365-390, September.
- Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
- Dimitri Vayanos, 1999. "Strategic Trading and Welfare in a Dynamic Market," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 219-254.
- Pagano, Michael S. & Schwartz, Robert A., 2003. "A closing call's impact on market quality at Euronext Paris," Journal of Financial Economics, Elsevier, vol. 68(3), pages 439-484, June.
- Comerton-Forde, Carole, 1999. "Do trading rules impact on market efficiency? A comparison of opening procedures on the Australian and Jakarta Stock Exchanges," Pacific-Basin Finance Journal, Elsevier, vol. 7(5), pages 495-521, December.
- Shastri, Karen A. & Shastri, Kuldeep & Sirodom, Kulpatra, 1995. "Trading mechanisms and return volatility: An empirical analysis of the stock exchange of Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 3(2-3), pages 357-370, July.
- Bruno Biais & Pierre Hillion & Chester Spatt, 1999. "Price Discovery and Learning during the Preopening Period in the Paris Bourse," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1218-1248, December.
- Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0411012. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.