Call Auction Transparency and Market Liquidity: Evidence from China

This paper uses the natural experiment offered by the Shanghai Stock Exchange to investigate the impact of opening call auction transparency on market liquidity. We find that the dissemination of indicative trade information during the pre‐open call auction session leads to an overall improvement in...

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Bibliographic Details
Published in:International review of finance 2015-06, Vol.15 (2), p.223-255
Main Authors: Gerace, Dionigi, Liu, Qigui, Tian, Gary Gang, Zheng, Willa
Format: Article
Language:English
Subjects:
G12
G14
G15
Liquidity
Securities trading
Stock exchanges
Studies
Online Access:Get full text
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Summary:This paper uses the natural experiment offered by the Shanghai Stock Exchange to investigate the impact of opening call auction transparency on market liquidity. We find that the dissemination of indicative trade information during the pre‐open call auction session leads to an overall improvement in stock liquidity in the continuous trading session. Bid‐ask spreads narrow in the first trading hour because adverse selection risk fell significantly and there is less price volatility in the continuous market. This effect is greater for actively traded securities than illiquid securities. Our findings are robust for different lengths of sample period, different lengths of trading hours after market open, and stocks that had (and had not) reformed the share split structure during our research period.
ISSN:1369-412X
1468-2443
DOI:10.1111/irfi.12047