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Switching to a Temporary Call Auction in Times of High Uncertainty David Abad Roberto Pascual PDF

45 Pages·2007·1.05 MB·English
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Preview Switching to a Temporary Call Auction in Times of High Uncertainty David Abad Roberto Pascual

XM8-07 Cubierta 19 28/2/07 11:47 Página 1 Switching to a Temporary Call Auction in Times of High Uncertainty David Abad Roberto Pascual XM8-07 BOLETIN 19 28/02/2007 11:44 Página 2 XM8-07 BOLETIN 19 28/02/2007 11:44 Página 3 Switching to a Temporary Call Auction in Times of High Uncertainty DAVID ABAD ROBERTO PASCUAL Monografía n.º 19 Febrero 2007 XM8-07 BOLETIN 19 28/02/2007 11:44 Página 4 David Abad es profesor titular y vicedecano de Estudios de Administración y Dirección de Empresa en la Universidad de Alicante. goliat@ua.es Roberto Pascual es profesor titular de la Universidad de las Islas Baleares,Departamento Economía de la Empresa,Area de Contabilidad y Finanzas. rpascual@uib.es Los autores agradecen a Yakov Amihud,Kenneth Kim y Bruce N. Lehmann,sus útiles comentarios y sugerencias. También agradecen a José Antonio Pérez de Sociedad de Bolsassu aportación de datos. Las opiniones expresadas en este documento reflejan exclusivamente la opinión de los autores y no deben ser atribuidas a la Comisión Nacional del Mercado de Valores. La Comisión Nacional del Mercado de Valores,al publicar esta serie,pretende facilitar la difusión de estudios que contribuyen al mejor conocimiento de los mercados de valores y su regulación. La Comisión Nacional del Mercado de Valores difunde la mayoría de sus publicaciones a través de la red INTERNET en la dirección www.cnmv.es © CNMV. Se autoriza la reproducción de los contenidos de esta publicación siempre que se mencione su procedencia. ISBN: 84-87870-62-7 Depósito Legal: M-10962-2007 Imprime: Cromotex XM8-07 BOLETIN 19 28/02/2007 11:44 Página 5 Abstract Madhavan (1992,The Journal of Finance,47,2,607-641) recommends a temporary switch to a call auction rather than a trading halt in times of market stress. He predicts the call auction to aggregate information more efficiently and to facilitate the resumption of the continuous session. In this paper,we test the properties of the switching mechanism proposed by Madhavan using data from the Spanish Stock Exchange (SSE). The SSE implements rule-based call auctions to stabilize prices. On the positive side, we find there is price learning during the auction, and price reversals dominate price continuations after the auction. On the negative side, we conclude rule-based auctions do not calm the market and do not reduce information asymmetries,except for small-caps. Our findings suggest the switching mechanism performs better with thinly traded stocks. Keywords: call auction,price learning,price reversals,price continuations,information asymmetry,thinly-traded stocks. JEL Classification: G10; G14. XM8-07 BOLETIN 19 28/02/2007 11:44 Página 6 XM8-07 BOLETIN 19 28/02/2007 11:44 Página 7 Contents 1. Introduction 11 2. Institutional 15 3. Literature review and hypotheses 17 4. Data and preliminary statistics 21 5. Empirical evidence on the efficiency of the switching mechanism 25 5.1. Price discovery during short-lived rule-based call auctions 25 5.2. Liquidity, activity, and volatility around rule-based calla auctions 28 5.3. Price continuation during and after rule-based cal auctions 32 5.4. Adverse selection costs around rule-based auctions 34 6. Summary and conclusions 39 7. Rerefences 41 XM8-07 BOLETIN 19 28/02/2007 11:44 Página 8 XM8-07 BOLETIN 19 28/02/2007 11:44 Página 9 Index of tables Table I. Preliminary Statistics 22 Table II. Price discovery during price-triggered volatility auctions 27 Table III. Price behavior during and after rule-based auctionsa 33 Index of figures Figure 1. Intraday Distribution of Volatility Auctions 23 Figure 2. Liquidity, volatility and activity around volatility auctions 30 Figure 3. Adverse selection costs around volatility auctions 36 XM8-07 BOLETIN 19 28/02/2007 11:44 Página 10

Description:
Los autores agradecen a Yakov Amihud, Kenneth Kim y Bruce N. Lehmann, sus útiles switch to a call auction rather than a trading halt in times of market stress. He .. would be more willing to anticipate their trading programs. (1999) build on Copeland and Galai's (1983) theoretical framework.
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