The Effects of Trading Methods on Volatility and Liquidity: Evidence from the Taiwan Stock Exchange

Rosita P. Chang, Shuh‐Tzy Hsu, Nai‐Kuan Huang and S. Ghon Rhee

Journal of Business Finance & Accounting, 1999, vol. 26, issue 1‐2, 137-170

Abstract: This study contrasts the call and continuous auction methods using Taiwan Stock Exchange data. Volatility under the call market method is approximately one‐half of that under the continuous auction method. The call market method is more effective in reducing the volatility of high‐volume stocks than low‐volume stocks. This contradicts conventional wisdom which suggests that the call market method is superior for thinly traded stocks, while the continuous auction method is preferred for heavily traded stocks. The call market method does not impair liquidity and price discovery. The call market appears more efficient than in the continuous auction market.

Date: 1999
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