The Impact of the Suspension of Opening and Closing Call Auctions: Evidence from the National Stock Exchange of India

Abstract

The paper analyses the impact of the suspension of opening and closing call auctions by the National Stock Exchange of India in 1999. We compare volatility, efficiency and liquidity (VEL) of securities before and after suspension, and estimate the value of the auctions using an event study. Following suspension, VEL improved and the CARs were significant but not uniformly positive or negative. We also find that less liquid stocks traded less in the auctions than other securities, especially at the opening, and they experienced the most gains following suspension. This is consistent with there being liquidity externalities associated with auctions, a point previous noted for industrial countries. We conclude that opening and closing call auctions may not necessarily improve share trading in a less liquid emerging market.

Keywords: Call Auctions, stock markets, National Stock Exchange of India

JEL Classification: G12, G14, G18