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Call auction frequency and market quality: Evidence from the Taiwan Stock Exchange

Mia Twu and Jianxin Wang

Journal of Asian Economics, 2018, vol. 57, issue C, 53-62

Abstract: Financial market quality is generally assessed with respect to efficiency, liquidity, and stability. The frequency of trading contributes to these attributes. The Taiwan Stock Exchange uses a periodic call auction as its main trading mechanism. From 2010 to 2014 the call auction interval was reduced four times, from 25 to 5 s, providing a natural experiment to test the impact on market quality. Using multiple measures of efficiency, liquidity, and stability we provide evidence that the reductions in call auction interval have improved overall market quality. We find that higher auction frequencies are associated with a lower trade-to-auction ratio and less aggressive trading behaviour. The evidence suggests that there are more gains to be made through further reduction in the call auction interval to around 2 s.

Keywords: Call auction; Call auction interval; Optimal call auction interval; Market quality (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:asieco:v:57:y:2018:i:c:p:53-62