Abstract
Using the intraday and daily data of Chinese A shares in Shanghai and Shenzhen from May to January 2018, this paper examines the regulatory impact of the Shanghai closing call auction on market liquidity, volatility, and price effectiveness using the Difference-in-Difference (DID) method. We find that the Shanghai closing call auction has no significant impact on market liquidity, but has resulted in 1) a shift of trading volume from closing to pre-closing; 2) increased volatility at pre-closing; 3) significant improvement in the continuity of the closing price; and 4) no prominent improvement on price effectiveness. Also, the regime appears to have a pronounced impact, particularly on small-cap stocks. Our findings suggest that the introduction of the Shanghai closing call auction helps reduce the risk of small-cap stocks, meanwhile improve the continuity of closing and pre-closing prices.
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