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

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. Copyright Blackwell Publishers Ltd 1999.

Financial reforms and time-varying microstructures in emerging equity markets

“…One explanation could be that the creation of a continuous random order arrival sequence significantly increases price fluctuation. This finding is somewhat aligned with Chang et al (1999) who found lower volatility levels under the call auction system in Taiwan. However, the impact of trading arrangements on the relationship uniting volatility and efficiency remains to be investigated.…”

How does the call market method affect price efficiency? Evidence from the Singapore Stock Market

“…Theissen (2000) reports that the CMM and CAM are more price efficient than dealer markets. Chang et al (1999) find that trading under the CMM is less volatile and more efficient than under the CAM.…”

Price limit performance: evidence from transactions data and the limit order book

“…A few exceptions include studies of the Tokyo Stock Exchange(Lehmann and Modest, 1994;Hamao and Hasbrouck, 1995; Ahn et al, 2002a,b), the Taiwan Stock Exchange(Chang et al, 1999), the Paris Bourse(Biais et al, 1995), and recently the Hong Kong Stock Exchange (e.g.,Ahn et al, 2001). 2 A secondary reason for studying the KLSE is that we can examine price limit performance within a periodic call market.…”