The Switch from Continuous to Call Auction Trading in Response to a Large Intraday Price Movement

Juan Reboredo

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Abstract: Some European exchanges (e.g. Euronext, Frankfurt and Madrid) make use of a mechanism to moderate price volatility that was proposed by Madhavan (1992, Journal of Finance, 47(2) 607-641) as preferable to a trading halt in times of market stress. It consists of a temporary switch from continuous to call auction trading in an individual security whenever its price moves beyond predetermined limits. This paper studies whether this mechanism sharpens the information content of prices, dampens volatility, and normalizes trading volume and intensity. Taking intraday data for the Madrid order-driven continuous market, I find post-switch improvements in the information content of prices and reductions in volatility, especially for thinly traded stocks. Trading volume and intensity peaked around auctions, but soon returned to pre-event levels.

Keywords: Social; Sciences; &; Humanities (search for similar items in EconPapers)
Date: 2011-02-08
Note: View the original document on HAL open archive server: https://hal.science/hal-00667598
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Published in Applied Economics, 2011, pp.1. ⟨10.1080/00036846.2010.526584⟩

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Journal Article: The switch from continuous to call auction trading in response to a large intraday price movement (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00667598

DOI: 10.1080/00036846.2010.526584

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