The Impact of the Suspension of Opening and Closing Call

International Journal of Banking, Accounting and Finance, 2009

We study the impact of the suspension of opening and closing call auctions by the National Stock Exchange of India in 1999. We compare volatility, efficiency and liquidity (VEL) of securities before and after suspension, and estimate the value of the auctions using an event study. Following suspension, VEL improved and the CARs were significant but not uniformly positive or negative.

Managerial Finance, 2015

Purpose – The purpose of this paper is to empirically investigate whether call auctions which batch orders for simultaneous execution, may restrain stock market volatility. Design/methodology/approach – The authors use high-frequency data to investigate volatility changes following the suspension of opening and closing call auctions on the National Stock Exchange (NSE) of India in 1999. The authors evaluate this issue by considering both modelled and realised volatility. Using a GARCH approach the authors model intra-day volatility for the trading days preceding and succeeding the auction suspension. The authors also scrutinise return distributions to look for volatility changes during different parts of the day. Findings – When interpreted collectively, the empirical results suggest that the auction suspension was followed by reduced volatility particularly in the middle of the trading day and at the closing. Practical implications – Given that auctions are often incorporated in tr...

SSRN Electronic Journal, 2012

Call markets are claimed to aggregate information and facilitate price discovery where continuous markets may fail. The impact of the introduction of call auction has not been found uniformly beneficial, possibly due to poor design or due to 'thick market externalities'. This paper examines the reintroduction of opening call auction at the National Stock Exchange of India in 2010. The results suggest that the auctions attract very little volume, the intraday pattern of volume and volatility in the continuous market remains unchanged and a large fraction of price discovery, measured by the Weighted Price Contribution, still takes place in the first 15 min of continuous market. However, the market synchronicity has improved after the introduction of the auction. Our findings suggest that the ability to attract volume in the call auction for effective price discovery depends on the institutional settings and the characteristics of liquidity supply in the market.

Pacific Basin Finance Journal, 2007

The Singapore Exchange introduced opening and closing call auctions in August 2000. We find that the frequency of call trades is lower than on other markets. However, when auctions are used, the percentage of daily volume traded in the auction is high. Many days without call trades have quotes during the pre-call periods so that there is an opportunity for learning about equilibrium prices even when there are no call trades. Consistent with prior research, the introduction of call auctions enhances market quality at the open and the close. The call auctions also helped to address the issues that motivated their introduction in Singapore. That is, they increased the volume traded at the opening in initial public offerings and reduced the incidence of closing price manipulation.

Copernican Journal of Finance & Accounting, 2020

Pre-open auctions have been widely implemented across trading exchanges. Pre-open auctions tend to reduce information asymmetry and trading risks. Call auctions have been encouraged to enhance price discovery. This paper explores the shifts in information content of the pre-market auction session over time. We derive that the information content of the pre opening auction did improve little after a gap of two months. We conclude that the intraday 15 minutes realized volatility was influenced by information content in the pre-market. We demonstrate that volatility is the cause of order imbalance or a cause of poor information content. The investigation of the related volatility in the futures segment provides interesting insights on the unusual pre-market imbalances visualized on days close to expiry of futures.

International Journal of Financial Research, 2015

The purpose of this paper is to investigate the volatility impacts of the suspension of a call auction system by the National Stock Exchange of India (NSE) in June 1999, thus extending prior empirical work relating to this area. The realised volatility on NSE is compared with that of the Bombay Stock Exchange using two volatility proxies: modulus of log returns and scaled intra-day price difference. We also focus on conditional volatility by estimating an AGARCH model on seasonallyadjusted NSE Nifty Index data. Whilst some results yield contrasting inferences, the overall outcomes indicate that volatility was higher during the auction period, and we do not find any evidence that supports the foreseen benefits of auction frameworks. Results reinforce the idea that market designers should think about the possible interactions with subsidiary market microstructure features when formulating auction protocols, since the latter may compromise auction efficacy.

Borsa Istanbul Review, 2015

To reduce extraordinary price movement and to ensure more effective price formation at closing time, Borsa Istanbul implemented closing call auction sessions on March 2, 2012. This study tests the effect of closing call auction sessions on closing price manipulation in Borsa Istanbul using 102 shares in various indexes. The analysis focuses on 624 days from November 1, 2006 to May 31, 2012. The results reveal an upward-oriented closing price manipulation prior to the implementation of closing call auction sessions. The data show a significant elimination in closing price manipulation following the implementation of closing call auction sessions.

2006

This thesis adopts an empirical approach to examine various market microstructure issues, using data from the National Stock Exchange of India (NSE). Whilst the respective empirical analyses may be considered as self-contained investigations, they are primarily linked through the common objective of understanding the mechanics of the pricing process as it occurs on actual markets, using the NSE as exemplar. The first major focus of the dissertation is non-synchronous trading: empirical evidence of nonsynchronicity is obtained by testing for predictability as between indices of different levels of liquidity. A simple test of the analysis of trading-break returns is proposed to infer whether predictability may be mainly attributable to non-synchronous trading or whether it constitutes a delayed adjustment of traders' expectations. The second question tackled in the thesis is whether volatility on the NSE may be considered as justified or excessive. Rather than adopting the established methodology of comparing stock price changes to information about expected dividends, the research question is split up into two subsidiary ones. The first question is whether volatility is related to information flows, whilst the second related question concerns the relationship between volatility and returns. Three sources of excessive volatility are pinpointed. Monday effects are found in index data but not in the underlying stocksindicating index fluctuations which are not information-related. A second indicator of excessive price movements is the pronounced volatility which coincides with the fiscal year end of quoted companies but which is not accompanied by a similar increase in long-term returns. A third indication of unjustified price fluctuations is that volatility seems unrelated to returns when considering a long-term time series. The third topic of the thesis relates to the efficacy of opening and closing call auctions. This issue may be considered as the crux of the dissertation and it is tackled by analysing the effects of the suspension of a call auction system on NSE. Changes in volatility, efficiency and liquidity following the suspension are analysed, and an event study is presented. The relationship between call auctions and long-term volatility is also investigated. The findings suggest that the expected benefits of call auctions may not always materialise, possibly due to an inappropriately structured auction, or because a liquidity threshold for stocks must be surpassed for the expected benefits to accrue.

2014

We model 73.62 million London Stock Exchange (LSE) trades with a combined transaction value of £5.45 ($8.96) trillion. We show that the LSE's high failure rate to open at the opening call auction only relates to low volume stocks. Evidence suggests that traders opt to hold off trading until the floor opens at 08:00hrs; this decision seems connected to the need to avoid the informed traders who dominate the opening auction. For the largest volume stocks, the opening call auction provides highly efficient opening prices, while the lower volume stocks attain similar levels of price efficiency only after the start of the normal trading hours (NTH). At the close however, all stocks only lose small fractions of informational efficiency achieved during the NTH. Opening prices may influence trader sentiment throughout the trading day, and opening/closing prices may be the basis for settling derivative contracts, they are therefore of great importance.

Accounting and Finance, 2005

The present paper examines the impact of closing call auctions on liquidity.