Trading mechanisms and return volatility: An empirical analysis of the stock exchange of Thailand

Shastri, Karen; Shastri, Kuldeep; Sirodom, Kulpatra

doi:10.1016/0927-538x(95)00004-5

Cited by 5 publications

(4 citation statements)

References 8 publications

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“…Other studies have empirically compared auction price characteristics with those of the continuous trading session on a given market (Amihud and Mendelson, 1987;Shastri et al, 1995). It was found that auction prices were more volatile; yet this might also be due to the fact that call auctions are most commonly held at the opening and/or closing of the session when volatility tends to be higher than during the rest of the day.…”

Section: Review Of Literaturementioning

confidence: 99%

Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India

Camilleri

2015

Managerial Finance

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Purpose – The purpose of this paper is to empirically investigate whether call auctions which batch orders for simultaneous execution, may restrain stock market volatility. Design/methodology/approach – The authors use high-frequency data to investigate volatility changes following the suspension of opening and closing call auctions on the National Stock Exchange (NSE) of India in 1999. The authors evaluate this issue by considering both modelled and realised volatility. Using a GARCH approach the authors model intra-day volatility for the trading days preceding and succeeding the auction suspension. The authors also scrutinise return distributions to look for volatility changes during different parts of the day. Findings – When interpreted collectively, the empirical results suggest that the auction suspension was followed by reduced volatility particularly in the middle of the trading day and at the closing. Practical implications – Given that auctions are often incorporated in trading systems with the aim of curtailing volatility, the main conclusion, that the auction suspension was followed by lower volatility, has important practical inferences. Auctions cannot be automatically relied on to reduce volatility. The intricacies of the auction protocol and their interaction with ancillary market microstructure features may impact on auction efficacy. Originality/value – The paper adopts a novel approach towards assessing the effectiveness of auctions by considering an unusual occurrence of an auction suspension. The empirical setting enables a clear comparison of the respective regimes since these periods do not materially differ in other subsidiary aspects. This is a noteworthy factor, since the empirical contexts considered in prior studies, often feature several simultaneous changes.

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Section: Review Of Literaturementioning

confidence: 99%

Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India

Camilleri

2015

Managerial Finance

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“…Amihud and Mendelson (1987) compared the opening call auction with the continuous trading session on the NYSE, and found that opening returns exhibited greater dispersion, higher negative autocorrelation and a larger residual error component than closing returns. Shastri, Shastri and Sirodom (1995) found that opening prices on the Thailand Stock Exchange, which are set by a call auction, tended to be more volatile than those of the rest of the day. However, since uncertainty is typically at its peak at the opening of a session, these results may just reflect the initial uncertainty, and not some inefficiency in the auction process itself.…”

Section: Research Backgroundmentioning

confidence: 99%

“…A further important limitation of the existing empirical literature on call auctions is that it is mostly concerned with the stock markets of the major industrial countries. Exceptionally, Shastri, Shastri and Sirodom (1995) investigated the impact of the opening call auction on the Bangkok stock exchange, and found that prices at the opening call were more volatile than during the rest of the day. This could be because uncertainty and therefore volatility are at their maximum early in the day following the overnight closing rather than because of deficiencies in the call auction system per se, and this is supported by the results of Amihud et.…”

Section: Introductionmentioning

confidence: 99%

The impact of the suspension of opening and closing call auctions: evidence from the National Stock Exchange of India

Camilleri

Green

2009

IJBAAF

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We study the impact of the suspension of opening and closing call auctions by the National Stock Exchange of India in 1999. We compare volatility, efficiency and liquidity (VEL) of securities before and after suspension, and estimate the value of the auctions using an event study. Following suspension, VEL improved and the CARs were significant but not uniformly positive or negative. Also, less liquid stocks traded less in the auctions than other securities, especially at the opening, and they experienced gains following suspension. This is consistent with there being liquidity externalities associated with auctions, as appears to be the case in some industrial countries. We conclude that opening and closing call auctions may not necessarily improve share trading in a less liquid emerging market.

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“…For month 0, the average variance ratio is 1.84 comparing to those of 1.32 and 1.48 in month -1 and +1, and the differences are significant at a 1% level. In Shastri et al (1995), the authors calculate variance ratio of all SET stocks that being traded more than 400 days during 1987-1988, excluding October 1987, and report that the average variance ratio is 1.37. It is shown that the average variance ratio in month 0 is significantly higher than those of all stocks as reported in Shastri et al, whereas those of month -1 and +1 are more consistent with the result in Shastri et al…”

Section: Structural Volatilitymentioning

confidence: 99%

The Effect Of Price Limits Changes On Return Volatility: Evidence From The Stock Exchange Of Thailand

Polwitoon

2011

IBER

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Trading mechanisms and return volatility: An empirical analysis of the stock exchange of Thailand

Cited by 5 publications

References 8 publications

Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India

Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India

The impact of the suspension of opening and closing call auctions: evidence from the National Stock Exchange of India

The Effect Of Price Limits Changes On Return Volatility: Evidence From The Stock Exchange Of Thailand

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