Abstract
On February 20, 2012, the Taiwan Stock Exchange launched an information disclosure mechanism that changed its closing auction system from a black box to a more transparent system, with indicative best bid and ask prices disseminated every 20 s throughout the five-minute closing call period. This paper examines the impact of this change on closing price behavior on month-end days. The results show that, following the introduction of the new mechanism, day-end returns and effective spreads decreased significantly on month-end days, suggesting an improvement in market quality and a decline in possible closing price manipulation on month-end days. In addition, the trading volume at market close increased. Further examination of order submission behavior and order imbalance in the closing interval shows that the increase in trading volume at closing is a result of increased market liquidity due to improved transparency. Overall, the introduction of the new closing disclosure rule has effectively enhanced market quality on month-end days.
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