Switching to a Temporary Call Auction in Times of High Uncertainty

45 Pages Posted: 10 Jun 2019

See all articles by David Abad

David Abad

Universidad de Alicante

Roberto Pascual

Universidad de las Islas Baleares

Multiple version iconThere are 2 versions of this paper

Date Written: 2007

Abstract

Madhavan (1992,The Journal of Finance, 47, 2, 607-641) recommends a temporary switch to a call auction rather than a trading halt in times of market stress. He predicts the call auction to aggregate information more efficiently and to facilitate the resumption of the continuous session. In this paper, we test the properties of the switching mechanism proposed by Madhavan using data from the Spanish Stock Exchange (SSE). The SSE implements rule-based call auctions to stabilize prices. Onthe positive side, we find there is price learning during the auction, and price reversals dominate price continuations after the auction. On the negative side, we conclude rule-based auctions do not calm the market and do not reduce information asymmetries, except for small-caps. Our findings suggest the switching mechanism performs better with thinly traded stocks.

Keywords: call auction, price learning, price reversals, price continuations, informationasymmetry, thinly-traded stocks

JEL Classification: G10; G14

Suggested Citation

Abad, David and Pascual Gascó, Roberto, Switching to a Temporary Call Auction in Times of High Uncertainty (2007). CNMV Working Paper No. 19 (2007), Available at SSRN: https://ssrn.com/abstract=3400715 or http://dx.doi.org/10.2139/ssrn.3400715

David Abad (Contact Author)

Universidad de Alicante ( email )

Campus de San Vicente
Carretera San Vicente del Raspeig
San Vicente del Raspeig, 03690
Spain

Roberto Pascual Gascó

Universidad de las Islas Baleares ( email )

Ctra. de Valldemossa km 7,5
Departamento de Economia y Empresa
Palma, Baleares
Spain
+34 971 17 13 29 (Phone)
+34 971 17 23 89 (Fax)

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