Call auction algorithm design and market manipulation [An article from: Journal of Multinational Financial Management]

This digital document is a journal article from Journal of Multinational Financial Management, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
It is commonly accepted that closing call auctions provide investors with access to closing prices, reduce volatility and reduce price manipulation. This paper argues that call auction design may influence the achievement of these objectives. The paper focuses on one aspect of call auction design, namely the matching algorithm used to set auction prices. Analysis of two real market cases indicates that different algorithms set different prices. The results also indicate that manipulation has a significant impact on call auction prices, with some algorithm designs more effective than others at reducing the impact of manipulation. Alternate call auction design features, such as volatility extensions, may be necessary to more effectively reduce closing price manipulation.