Call Auction Transparency and Market Liquidity: Evidence from China

Dionigi Gerace, Qigui Liu, Gary Gang Tian*, Willa Zheng

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)223-255
Number of pages33
JournalInternational Review of Finance
Volume15
Issue number2
DOIs
Publication statusPublished - 1 Jun 2015
Externally publishedYes

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