Impact of the introduction of call auction on price discovery: Evidence from the Indian stock market using high-frequency data |
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| Institution: | 1. IÉSEG School of Management (LEM-CNRS), Lille Catholic University, 3, rue de la Digue, 59000 Lille, France;2. Faculty of Business Administration, Lakehead University, 955 Oliver Road, Thunder Bay, Ontario P7B 5E1, Canada;1. School of Business and Economics, Loughborough University, UK;2. Department of Economics, University of NE-Omaha, USA;1. Department of Banking & Finance, Monash University, Clayton, Australia;2. Department of Econometrics & Business Statistics, Monash University, Clayton, Australia;1. Bank of England, Threadneedle Street, London EC2R 8AH, UK;2. Faculty of Business and Economics, The University of Hong Kong, Pokfulam Road, Hong Kong;3. London School of Economics and Centre for Economic Policy Research (CEPR), London WC2A 2AE, UK;4. School of Economics and Management, Tsinghua University, Beijing 100084, China |
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| Abstract: | 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. |
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