Call Auction Trading: New Answers to Old Questions

Schwartz, Robert A.; Byrne, John Aidan; Colaninno, Antoinette

doi:10.1007/b100807

Cited by 2 publications

(1 citation statement)

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“…Proponents of the call auction mechanism argued that the call auction might help reducing trading cost and enhancing price discovery (see e.g. Pagano & Schwartz, 2003;Schwartz et al , 2003), and the call auction has been used as the main trading mechanism of the Arizona Stock Exchange that has been operational from 1990 to 2001. Note also that recent trading accidents due to uncontrolled algorithmic trading have raised some new interests for the call auction: its non-continuous periodic trading times may appear as a potential solution against "flash crashes" such as the one observed on the NYSE on May 6th, 2010.…”

Section: Introductionmentioning

confidence: 99%

Exact and Asymptotic Solutions of the Call Auction Problem

Toke

2015

Mark. Microstructure Liq.

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The call auction is a widely used trading mechanism, especially during the opening and closing periods of¯nancial markets. In this paper, we study a standard call auction problem where orders are submitted according to Poisson processes, with random prices distributed according to a general distribution F, and may be cancelled at any time. We compute the analytical expressions of the distributions of the traded volume, of the lower and upper bounds of the clearing prices, and of the price range of these possible clearing prices of the call auction. Using results from the theory of order statistics and a theorem on the limit of sequences of random variables with independent random indices, we derive the weak limits of all these distributions. In this setting, traded volume and bounds of the clearing prices are found to be asymptotically normal, while the clearing price range is asymptotically exponential. All the parameters of these distributions are explicitly derived as functions of the parameters of the incoming orders'°ows.

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Section: Introductionmentioning

confidence: 99%