Abstract
Price volatility and market efficiency is examined for an automated periodic auction mechanism and a continuous automated auction, using data which obviate ambiguities due to periods of non-trading. Theoretical results suggest equality of price volatility across periodic and continuous mechanisms, depending on order arrival rates. The empirical analysis consists of direct comparisons via variance ratios and variance ratio tests conditional on a model of price and value adjustment. The periodic auction yields the same volatility as the continuous market for a stock index contract, while the periodic market is associated with lower volatility for currency futures, consistent with order flow considerations. Tests fail to reject market efficiency for the index contract and three out of four currency futures, regardless of trading mechanism.
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© 2001 Springer Science+Business Media New York. Boston
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Coppejans, M., Domowitz, I. (2001). Noise in the Price Discovery Process: A Comparison of Periodic and Continuous Auctions. In: Schwartz, R.A. (eds) The Electronic Call Auction: Market Mechanism and Trading. The New York University Salomon Center Series on Financial Markets and Institutions, vol 7. Springer, Boston, MA. https://doi.org/10.1007/978-1-4615-1697-2_26
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DOI: https://doi.org/10.1007/978-1-4615-1697-2_26
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