Opening and closing the market: evidence from the London Stock Exchange
Ellul, Andrew; Shin, Hyun Song; Tonks, Ian
Date: 2004
Working Paper
Publisher
University of Exeter, Xfi Centre for Finance and Investment
Abstract
We investigate the performance of call markets at the open and close using a unique
natural experiment provided by the London Stock Exchange where traders can choose
between a call and an "off-exchange" dealership system. Although the call market
dominates dealers in terms of price discovery, it suffers from a high failure rate ...
We investigate the performance of call markets at the open and close using a unique
natural experiment provided by the London Stock Exchange where traders can choose
between a call and an "off-exchange" dealership system. Although the call market
dominates dealers in terms of price discovery, it suffers from a high failure rate to open
and close trading especially when trading conditions are difficult. The call's trading costs
increase with (a) greater asymmetric information, (b) slow trading, (c) unbalanced order
flow, and (d) greater uncertainty. Traders' resort to call auctions is negatively correlated
with firm size, implying that the call may not be the optimal method for opening and
closing trading of medium and small sized stocks.
Finance and Accounting
Faculty of Environment, Science and Economy
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