Impact of the Introduction of Call Auction on Price Discovery: Evidence from the Indian Stock Market Using High-Frequency Data

32 Pages Posted: 13 Dec 2012 Last revised: 15 Dec 2012

See all articles by Sobhesh Kumar Agarwalla

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad

Joshy Jacob

Indian Institute of Management

Ajay Pandey

OP Jindal Global University - Jindal Global Law School (JGLS)

Date Written: December 12, 2012

Abstract

Call markets are claimed to aggregate information and facilitate price discovery where continuous markets may fail. Its advantage, however, comes at the cost of immediacy. 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 recent re-introduction of opening call auction at the National Stock Exchange of India. This was advocated based on the evidence of positive effect of call auction on market quality at phases with high volatility or information asymmetry. The results suggest that the intraday pattern of volume and volatility in the continuous market remains unchanged even after the introduction of the call. The volatility and volume still take about 30 minutes to stabilize and the auction attracts very little volume. There is excess price movement in the call auction as suggested by the negative intraday return correlations. However, the synchronicity of price discovery, on the lines of Pagano and Schwartz (2003), indicates some improvement in the market quality. Possibly, the no all-round improvement of price discovery could be attributed to the extremely short duration of the call auction. The paper contributes to the understanding of the impact of opening call auction on market quality.

Keywords: Call Auction, Market Opening, Market Effciency, Intraday Behaviour, Emerging Markets

JEL Classification: G12, G14, G15

Suggested Citation

Agarwalla, Sobhesh Kumar and Jacob, Joshy and Pandey, Ajay, Impact of the Introduction of Call Auction on Price Discovery: Evidence from the Indian Stock Market Using High-Frequency Data (December 12, 2012). Available at SSRN: https://ssrn.com/abstract=2188542 or http://dx.doi.org/10.2139/ssrn.2188542

Sobhesh Kumar Agarwalla (Contact Author)

Indian Institute of Management (IIM) Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India
91.79.66324865 (Phone)

Joshy Jacob

Indian Institute of Management ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Ajay Pandey

OP Jindal Global University - Jindal Global Law School (JGLS) ( email )

Jindal Centre 12 Bhi12 Bhikaiji Cama Place
Near Jagdishpur Village
New Delhi, Uttar Pradesh/Haryana 110 066
India

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