Call Auction Transparency and Market Liquidity: Evidence from China

33 Pages Posted: 3 Jun 2015

See all articles by Dionigi Gerace

Dionigi Gerace

The University of Sydney

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies; Macquarie University, Macquarie Business School

Willa Zheng

University of Wollongong - School of Accounting, Economics & Finance

Date Written: June 2015

Abstract

This paper uses the natural experiment offered by the Shanghai Stock Exchange to investigate the impact of opening call auction transparency on market liquidity. We find that the dissemination of indicative trade information during the pre‐open call auction session leads to an overall improvement in stock liquidity in the continuous trading session. Bid‐ask spreads narrow in the first trading hour because adverse selection risk fell significantly and there is less price volatility in the continuous market. This effect is greater for actively traded securities than illiquid securities. Our findings are robust for different lengths of sample period, different lengths of trading hours after market open, and stocks that had (and had not) reformed the share split structure during our research period.

JEL Classification: G12, G14, G15

Suggested Citation

Gerace, Dionigi and Liu, Qigui and Tian, Gary Gang and Zheng, Willa, Call Auction Transparency and Market Liquidity: Evidence from China (June 2015). International Review of Finance, Vol. 15, Issue 2, pp. 223-255, 2015. Available at SSRN: https://ssrn.com/abstract=2613720 or http://dx.doi.org/10.1111/irfi.12047

Dionigi Gerace (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NC NSW 2006
Australia

Qigui Liu

Department of Finance and Accounting, School of Management, Zhejiang University ( email )

Hangzhou, Zhejiang Province 310058
China

Gary Gang Tian

Macquarie University - Department of Applied Finance and Actuarial Studies ( email )

Room 513, Building E4A
North Ryde, NSW, 2109
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

Willa Zheng

University of Wollongong - School of Accounting, Economics & Finance ( email )

Northfields Avenue
Wollongong, NSW 2522
Australia

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