How Should We Ring the Closing Bell? Determining Optimal Closing Auction Design

52 Pages Posted: 6 Apr 2022 Last revised: 13 Aug 2023

See all articles by Anne Haubo Dyhrberg

Anne Haubo Dyhrberg

Wilfrid Laurier University - Lazaridis School of Business and Economics

Ester Félez-Viñas

University of Technology Sydney; Digital Finance CRC

Sean Foley

Macquarie University

Tālis J. Putniņš

University of Technology Sydney (UTS); Digital Finance CRC; Stockholm School of Economics, Riga

Date Written: August 12, 2023

Abstract

Using comprehensive global data, we find that introducing a closing auction in stock markets to set closing prices typically improves liquidity, price efficiency, and market integrity. However, auction design matters -- price stabilization features and randomized closing times make auctions more effective, whereas transparent indicative closing prices are often detrimental. The effects vary with the level of market development, suggesting there is no "one size fits all'' optimal design. Many markets introduce closing auctions based on neighboring market designs, rather than an optimal design, suggesting scope to improve closing mechanisms in many markets.

Keywords: Closing Auction, Auction Design, Market Quality, Market Integrity

Suggested Citation

Dyhrberg, Anne Haubo and Félez-Viñas, Ester and Foley, Sean and Putnins, Talis J., How Should We Ring the Closing Bell? Determining Optimal Closing Auction Design (August 12, 2023). Available at SSRN: https://ssrn.com/abstract=4057740 or http://dx.doi.org/10.2139/ssrn.4057740

Anne Haubo Dyhrberg

Wilfrid Laurier University - Lazaridis School of Business and Economics ( email )

75 University Ave W
waterloo, ontario N2L 3C5
Canada

Ester Félez-Viñas (Contact Author)

University of Technology Sydney ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

Digital Finance CRC ( email )

Sean Foley

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia
0417702600 (Phone)

Talis J. Putnins

University of Technology Sydney (UTS) ( email )

PO Box 123
Broadway
Sydney
Australia
+61 2 9514 3088 (Phone)

Digital Finance CRC ( email )

Stockholm School of Economics, Riga ( email )

Strelnieku iela 4a
Riga, LV 1010
Latvia
+371 67015841 (Phone)

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