Mid-Day Call Auctions

56 Pages Posted: 22 Jun 2021

See all articles by Jonathan Brogaard

Jonathan Brogaard

University of Utah - David Eccles School of Business

Björn Hagströmer

Stockholm University - Stockholm Business School

Caihong Xu

Stockholm University - Stockholm Business School

Date Written: June 15, 2021

Abstract

In illiquid and fragmented limit order book markets, asynchronously arriving buyers and sellers have a coordination problem. This problem is particularly strong mid-day, when trading is generally thin. We evaluate a market structure reform at Nasdaq Nordic, where the continuous trading session is replaced mid-day by a five-minute call auction. We find that the mid-day call auction works as a coordination device, reducing transitory price impact. The call auction attracts end investors rather than intermediaries. Stocks with greater end investor flows show stronger benefits of the call auction. The results indicate that mid-day auctions can improve continuous markets.

Keywords: illiquidity, coordination problem, frequent batch auctions, fragmentation

JEL Classification: G14, G15, G23

Suggested Citation

Brogaard, Jonathan and Hagströmer, Björn and Xu, Caihong, Mid-Day Call Auctions (June 15, 2021). Available at SSRN: https://ssrn.com/abstract=3868037 or http://dx.doi.org/10.2139/ssrn.3868037

Jonathan Brogaard (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

HOME PAGE: http://www.jonathanbrogaard.com

Björn Hagströmer

Stockholm University - Stockholm Business School ( email )

Stockholm
Sweden

Caihong Xu

Stockholm University - Stockholm Business School ( email )

Roslagsvägen 1010
Stockholm, SE-106 91
Sweden

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