تاثیر تماس پایانی بر کیفیت بازار در یورونکست پاریس
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|12623||2003||46 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics , Volume 68, Issue 3, June 2003, Pages 439–484
The Paris Bourse (currently Euronext Paris) refined its trading system to include electronic call auctions at market closings in 1996 for its less-liquid Continuous B stocks and in 1998 for its more actively traded Continuous A stocks. This paper analyzes the effects of the innovation on market quality. Our empirical analysis of price behavior for two samples of firms (50 B stocks and 50 A stocks) for two different calendar dates (1996 and 1998) indicates that introduction of the closing calls has lowered execution costs for individual participants and sharpened price discovery for the broad market. We further observe that market quality is improved at market openings, albeit to a lesser extent. We suggest that a positive spillover effect explains the closing call's more pervasive impact.
On May 13, 1996 the Paris Bourse (currently Euronext Paris) changed its market structure by introducing a closing call auction for the less-liquid stocks (the continuous B stocks) in its continuous, electronic Cotation Assisteé en Continu (CAC) market. Two years later, on June 2, 1998 the exchange introduced the closing call auction for its more actively traded Continuous A stocks. This paper seeks to assess the impact that the call auction has had on price determination at the close of trading on the Paris Bourse. A call auction differs from continuous trading in the following way. In a continuous market, a trade is made whenever a bid and offer match or cross each other.1 In a call auction, the buy and sell orders are cumulated for each stock for simultaneous execution in a multilateral, batched trade, at a single price, at a predetermined time. By consolidating liquidity at specific times, a call auction is intended to reduce execution costs for individual participants and to sharpen the accuracy of price discovery for the broad market. Closing call auctions were introduced at the Paris Bourse specifically because of customers’ demands for improved price discovery at market closings. Most important, derivatives trading was being adversely affected by the ease with which only a few, relatively small orders could change closing prices in the equity market.2 The situation was making it difficult for traders to unwind their positions at appropriate prices and for positions to be marked-to-market at appropriate prices. Other European bourses have also taken steps to improve the quality of closing prices. Closing as well as opening calls are now incorporated into the market models of, among other European exchanges, Deutsche Börse, the London Stock Exchange, and the Swiss Exchange.3 The paper's significance is threefold. First, evaluating the efficiency of the electronic call auction is important in its own right, as the call auction is the least understood of the three major trading regimes (the other two generic market structures are the continuous order book market and the quote driven, dealer market). Second, a crisp, ceteris paribus assessment of any market structure feature is extremely difficult to obtain. Fortunately, the specific way in which the closing auction was introduced in Paris provides an especially clear test of the power of a call market. Third, the paper develops a new and different methodology for assessing market quality. Specifically, we use the well-known market model in an event study context to infer the quality of price discovery at market closings and openings. Regarding the importance of the call market, call auctions have long been used in European equity markets both before and after automated continuous trading systems were introduced, and calls are the standard procedure for opening the electronic order book markets of Canada and the Far East (Schwartz, 2001). They are neither widely used nor well understood in the United States, however. The New York Stock Exchange opens with a nonelectronic call, and Nasdaq has no special opening facility at all. Because of the importance of a single price opening procedure, Arthur Levitt, then chairman of the U.S. Securities and Exchange Commission, pressured Nasdaq in May 2000 to introduce call auction trading.4 Nasdaq responded by establishing a special committee to consider the procedure but, thus far, has announced no plans to introduce it into its market model.5 Regarding our assessment of the impact of a specific market structure design feature, by introducing the closing call at two different dates for two different sets of companies, the Paris Bourse provides an exceptionally rigorous ceteris paribus environment for assessing the efficiency of call auction trading. We have also been given the opportunity to test the robustness of our analysis through replication. In addition, we are able to contrast changes in the quality of the market at closing with changes in the quality of the Paris Bourse's market opening.6 Consequently, we have reasonable assurance that our findings are not attributable to the particular time period used or stocks selected. Further, we have confidence that our statistical findings are attributable to the call itself, instead of to some other factor. Interpretability is extremely important, but not always clearly achieved. For instance, Amihud and Mendelson's (1987) finding that volatility is greater at NYSE call market openings than at NYSE continuous market closes could be interpreted, not as evidence of the inferiority of the call, but of the greater difficulty of price discovery at the open. Muscarella and Piwowar (2001) found that market quality deteriorates at the Paris Bourse for stocks that are moved from their continuous market to call market only trading (or vice versa) during 1995–99 and that market quality increases for stocks that are moved from their call market to their continuous market trading. The authors attribute these findings to the superiority of the continuous market. However, call market only trading is used in Paris for the less liquid, less frequently traded stocks, and moving to the call market is equivalent to being delisted from the continuous market. For this reason, the finding could be interpreted as reflecting the impact of delisting and listing, rather than market structure, per se.7 Our results are robust to the possible confounding effect of Paris Bourse stocks being moved from call auction to continuous trading (or vice versa). In a paper that focuses on Israeli stocks that moved to a new continuous trading system on the Tel Aviv Stock Exchange during the period 1997–99, Kalay et al. (2002) present evidence of investor preference for continuous trading. This is consistent with the Paris experience, in which the preponderance of trading (roughly 95%) has remained in the continuous market despite the existence of opening and closing calls. Investors could nevertheless benefit collectively from the improved liquidity provision and price discovery at key points during a trading session (e.g., at the open and at the close) that is attributable to the inclusion of the periodic call auctions. A key part of any study of market structure is the measure of market quality employed. Our innovation in this paper is to infer market quality from the synchronicity of price changes across a set of stocks. We do this using the well-known market model. Inaccuracies in price discovery for individual stocks and nonsynchronous price adjustments across stocks are related phenomena, and we can gain insight into the former by studying the latter. Drawing on work by Cohen et al. (1983a,b), we use the market model to contrast the short-run and long-run relations between individual stock returns and broad market index returns (for simplicity, we use a single factor model for the analysis). This methodology provides the basis for our event study, in which the event is the introduction of the closing call (using the Cohen, Hawawini, Maier, Schwartz, and Whitcomb methodology, we find clearer evidence of the impact of the introduction of the call auction. For our purposes, some of the more conventional tests give results that are not as unambiguous. See the appendix for further discussion). We employ measurement intervals ranging from 1 day to 20 days to contrast the short-period relations between individual stock returns and the returns on a broad market index. Factors such as bid-ask spreads, market impact, and inaccuracies in price discovery affect the very short interval returns. Fleming and Remolona (1999), in their analysis of the U.S. Treasury market, demonstrate that protracted surges in volume and price volatility, and relatively wide spreads attend the release of major macroeconomic announcements. They attribute these protracted effects to “differential private views that take time for the market to reconcile” (p. 1912). In so doing, the authors link the volume, volatility, and spread effects to protracted price discovery. If price discovery for individual equity shares is similarly a protracted process, then the synchronicity of short-term stock price adjustments across a set of stocks is also expected to be disturbed. Further, if inaccuracies in price discovery compound as the measurement interval is lengthened, trading frictions can distort the relations between individual stock returns and market index returns, not only for very short intervals (i.e., intraday), but also for fairly substantial intervals (e.g., 10 days or more). Our methodology is designed to capture this. We further assess the methodology by running a variety of more standard tests with the Paris data. For the most part, the findings for these alternative tests are qualitatively similar, but not as robust. Our market model tests clearly indicate that price adjustments, for the stocks in our sample, are more synchronized after the closing call's implementation. The results are consistent for two independent events and two different samples of stocks using the beta and R2 measures, as well as for other measures that are frequently cited in the literature. The replication of our findings over two different time periods gives us further confidence in our inference about the improvement in market quality at the market close. We have been advised that improving market quality at the close has a beneficial effect for the derivatives markets. However, the innovation could have broader impacts on the cash market, and these, too, should be considered. If a substantial number of orders are directed to the closing call only, spreads could widen and liquidity could dry up in the continuous market immediately preceding the call. The Paris Bourse has shown, and our own analysis suggests, that this has not been the case. Nevertheless, trading in the closing calls is meaningful and has succeeded in attracting institutional orders that would otherwise not have been executed in the continuous market in a given day, but it would have been carried over to the next day. To control market impact, institutions commonly slice their orders into smaller tranches that they feed to the market over extended periods of time (a day or so). The process results in unfilled orders that hang over the market. The bunching of orders at a closing call makes it easier for the institutions to bring their orders forward and to execute them with minimal market impact. As a consequence, market overhang is reduced. We further consider the impact the closing calls have on the quality of price formation at next day openings. We find that market quality has improved at the open, but to a lesser extent than at the close. Thus our results underscore the importance of the microstructure innovation. The results are robust to the possible confounding effects of samplewide changes in return volatility and trading volume during the periods surrounding the closing call's two implementation dates. Our findings are supported further by the lack of any material changes in the test statistics for two control samples for both opening and closing prices. We used the Continuous B stocks as a control sample for the Continuous A stocks’ event date, and vice versa. Tests on both of these control samples show far less significant change in the synchronicity of price adjustments across stocks. This gives confidence that our results are not attributable to the specific sample of stocks, time period, or methodology that we use. The remainder of the paper is organized as follows. Section 2 discusses the relevant literature. Section 3 describes the call auction procedure used by the Paris Bourse, and Section 4 describes several econometric tests that examine our hypotheses. Section 5 describes the data. Section 6 presents the broad picture of intraday effects on percentage spreads, returns volatility, and trading volume measured over hourly intervals. 7, 8 and 9 present the empirical results for, respectively, tests based on closing prices, tests focused on three other times of the day (the closing minutes of continuous trading, market openings, and the overnight return), and robustness tests. Section 10 presents our conclusions. Additional tests are reported in the appendix.