The influence of call auction algorithm rules on market efficiency

Abstract

This paper analyzes the impact of call auction design on the efficiency of auction prices. On 18 March 2002, the Australian Stock Exchange introduced a new matching algorithm and began to disseminate indicative auction prices and indicative surplus volumes. The results indicate that these changes significantly enhanced call auction price efficiency, especially in active stocks at the open. The efficiency gains are greatest when call auction prices are set after considering order imbalances and market pressure. Consistent with previous research, the results also indicate significant noise in pre-open prices. As the market open approaches, this noise diminishes and price discovery occurs. © 20..