Opening and Closing Price Efficiency: Do Financial Markets Need the Call Auction?

57 Pages Posted: 6 Mar 2014 Last revised: 17 Jan 2016

See all articles by Gbenga Ibikunle

Gbenga Ibikunle

University of Edinburgh; European Capital Markets Cooperative Research Centre

Date Written: November 23, 2014

Abstract

We model 73.62 million London Stock Exchange (LSE) trades and show that the LSE’s high rate of failure to open at the opening auction only relates to low volume stocks. Low volume stock traders avoid trading until the open; this seems connected to their evading the informed trading-dominated opening auction. For the largest volume stocks, the opening auction provides highly efficient opening prices, while the lower volume stocks attain similar levels of price efficiency only after the start of normal trading hours (NTH). At the close however, all stocks only lose small fractions of informational efficiency achieved during the NTH.

Keywords: Price efficiency, Price discovery, Trading activity, Call auction, London Stock Exchange

JEL Classification: G12, G14, G15

Suggested Citation

Ibikunle, Gbenga, Opening and Closing Price Efficiency: Do Financial Markets Need the Call Auction? (November 23, 2014). Journal of International Financial Markets, Institutions and Money, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2404360 or http://dx.doi.org/10.2139/ssrn.2404360

Gbenga Ibikunle (Contact Author)

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

European Capital Markets Cooperative Research Centre ( email )

Viale Pidaro 42
Pescara, 65121
Italy

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