Abstract
The purpose of this paper is to investigate the volatility impacts of the suspension of a call auction system by the National Stock Exchange of India (NSE) in June 1999, thus extending prior empirical work relating to this area. The realised volatility on NSE is compared with that of the Bombay Stock Exchange using two volatility proxies: modulus of log returns and scaled intra-day price difference. We also focus on conditional volatility by estimating an AGARCH model on seasonally-adjusted NSE Nifty Index data. Whilst some results yield contrasting inferences, the overall outcomes indicate that volatility was higher during the auction period, and we do not find any evidence that supports the foreseen benefits of auction frameworks. Results reinforce the idea that market designers should think about the possible interactions with subsidiary market microstructure features when formulating auction protocols, since the latter may compromise auction efficacy.
Highlights
The evaluation of different trading protocols is one of the salient branches of market microstructure studies, given its relevance to traders and market designers
In this paper we analysed volatility changes following the suspension of opening and closing call auctions on National Stock Exchange of India (NSE)
We compared the volatility prevailing on the NSE with that on Bombay Stock Exchange (BSE), using the log return moduli and the scaled intra-day price differences
Summary
The evaluation of different trading protocols is one of the salient branches of market microstructure studies, given its relevance to traders and market designers. The efficacy of call auctions, as compared to other market frameworks such as continuous trading takes a prominent role in this strand of literature. Call auctions are expected to aggregate information more efficiently, since a wider cross-section of orders are taken into consideration when determining prices (Economides and Schwartz, 1995). This contrasts with continuous trading, where transactions take place at any instant when two orders on the opposite side of the market may be matched. If auctions accelerate price discovery, one may expect a lower degree of price dispersion around fundamental values Such assertion is not fully supported by empirical literature which offers contradictory overall evidence
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
