The Influence of Call Auction Algorithm Rules on Market Efficiency

Posted: 14 May 2005

See all articles by Carole Comerton-Forde

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

James Rydge

Grantham Research Institute on Climate Change and the Environment

Abstract

This paper analyzes the impact of call auction design on the efficiency of auction prices. On 18 March 2002, the Australian Stock Exchange introduced a new matching algorithm and began to disseminate indicative auction prices and indicative surplus volumes. The results indicate that these changes significantly enhanced call auction price efficiency, especially in active stocks at the open. The efficiency gains are greatest when call auction prices are set after considering order imbalances and market pressure. Consistent with previous research, the results also indicate significant noise in pre-open prices. As the market open approaches, this noise diminishes and price discovery occurs.

Keywords: Call auction, price efficiency, matching algorithm, auction design

JEL Classification: G14

Suggested Citation

Comerton-Forde, Carole and Rydge, James, The Influence of Call Auction Algorithm Rules on Market Efficiency. Journal of Financial Markets, Vol. 9, pp. 199-222, 2006, Available at SSRN: https://ssrn.com/abstract=603242

Carole Comerton-Forde

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

James Rydge (Contact Author)

Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

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