The Impact of Closing Call Auction on Liquidity and Price Discovery Process: An Analysis on the Stock Exchange of Hong Kong

31 Pages Posted: 12 Aug 2011

See all articles by Ka Nok Chan

Ka Nok Chan

University of New South Wales (UNSW)

Michael J. Aitken

Macquarie Graduate School of Management

Andrew Lepone

University of Sydney; Financial Research Network (FIRN)

Date Written: August 12, 2011

Abstract

In 2008 The Hong Kong stock exchange introduced a closing call auction, which was subsequently removed in March 2009 after instances of market manipulation1. This paper examines the impact of the introduction and suspension of the closing call auction on market quality. Our empirical analysis finds that the introduction of the closing calls leads to an increases in transaction costs. The percentage of daily volume traded in the closing call auction is high, and the price discovery process is improved. Overall, the suspension of the closing call auction leads to a decrease in market quality.

Suggested Citation

Chan, Ka Nok and Aitken, Michael J. and Lepone, Andrew, The Impact of Closing Call Auction on Liquidity and Price Discovery Process: An Analysis on the Stock Exchange of Hong Kong (August 12, 2011). Available at SSRN: https://ssrn.com/abstract=1908626 or http://dx.doi.org/10.2139/ssrn.1908626

Ka Nok Chan (Contact Author)

University of New South Wales (UNSW)

Kensington
High St
Sydney, NSW 2052
Australia

Michael J. Aitken

Macquarie Graduate School of Management ( email )

North Ryde
Sydney, New South Wales 2109
Australia

Andrew Lepone

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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