A Call Auction’s Impact on Price Formation and Order Routing: Evidence from the NASDAQ Stock Market

55 Pages Posted: 27 Mar 2008 Last revised: 8 Feb 2013

See all articles by Michael S. Pagano

Michael S. Pagano

Villanova University - Villanova School of Business

Robert A. Schwartz

Baruch College - CUNY

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: October 22, 2012

Abstract

Electronic call auctions are used globally to open and close equity market trading; as such, they are a critically important facility that needs to be better understood. The paper focuses on the impact NASDAQ’s calls (introduced in 2004) have had on bid-ask spreads, price volatility, and order routing in the continuous market that follows daily openings and which precedes daily closings. NASDAQ’s closing call has significantly reduced both spreads and volatility for all market capitalization groups. Its opening call similarly reduced spreads, while a generally similar, though somewhat weaker, pattern of volatility reduction was realized. Although the pattern of trading volume has, for the most part, not been significantly affected, our findings, comprehensively viewed, suggest that the calls have had a positive spillover effect on the dynamic behavior of price formation in NASDAQ’s continuous market.

Keywords: opening price, closing price, price discovery, intra-day volatility, market microstructure, equity markets, call auction, NASDAQ

JEL Classification: G14, D44

Suggested Citation

Pagano, Michael S. and Schwartz, Robert A. and Peng, Lin, A Call Auction’s Impact on Price Formation and Order Routing: Evidence from the NASDAQ Stock Market (October 22, 2012). Available at SSRN: https://ssrn.com/abstract=1107378 or http://dx.doi.org/10.2139/ssrn.1107378

Michael S. Pagano

Villanova University - Villanova School of Business ( email )

800 Lancaster Avenue
Villanova, PA 19085-1678
United States
(610) 519-4389 (Phone)

HOME PAGE: http://www90.homepage.villanova.edu/michael.pagano

Robert A. Schwartz

Baruch College - CUNY ( email )

Zicklin School of Business
17 Lexington Avenue
New York, NY 10010
United States
646-312-3467 (Phone)
646-312-3530 (Fax)

Lin Peng (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

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