Frequent Batch Auctions vs. Continuous Trading: Evidence from Taiwan

Abstract

We exploit the switch from frequent batch auctions to continuous trading at the Taiwan Stock Exchange to show that liquidity did not change significantly for all stocks, while efficiency improved substantially for mid-cap and small-cap after trading became continuous. We also find positive and significant abnormal returns for mid-cap and small-cap, whilst for large-cap abnormal returns are positive but not significant. Continuous trading increased profits for fast investors and losses for individual investors in mid-cap and small-cap. The results inform the debate on optimal market design and suggest that investors highly value the opportunity to trade continuously.

Keywords: frequent batch auction, continuous trading, market quality, market efficiency, abnormal return, investor performance

JEL Classification: G12, G14, G15