Continuous Trading or Call Auctions: Revealed Preferences of Investors at the Tel Aviv Stock Exchange

Avner Kalay · Wei Li · Avi Wohl

72 citations0/0 files storedThe Journal of Finance

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Financial Markets and Investment Strategies Corporate Finance and Governance Finance, Markets, and Regulation

Abstract

ABSTRACT We use the move of Israeli stocks from call auction trading to continuous trading to show that investors have a preference for stocks that trade continuously. When large stocks move from call auction to continuous trading, the small stocks that still trade by call auction experience a significant loss in volume relative to the overall market volume. As small stocks move to continuous trading, they experience an increase in volume and positive abnormal returns because of the associated increase in liquidity. Overall, though, a move to continuous trading increases the volume of large stocks relative to small stocks.

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References

1985Continuous Auctions and Insider Trading 1986Asset pricing and the bid-ask spread 1988A Theory of Intraday Patterns: Volume and Price Variability 1996Market microstructure and asset pricing: On the compensation for illiquidity in stock returns 1998Liquidity and stock returns: An alternative test 1998Alternative factor specifications, security characteristics, and the cross-section of expected stock returns1We are especially grateful to Eugene Fama (a referee), an anonymous referee and Bill Schwert (the editor) for insightful and constructive suggestions. We also thank Wayne Ferson, Ken French, Will Goetzmann, Craig Holden, Ravi Jagannathan, Bob Jennings, Bruce Lehmann, Josef Lakonishok, Richard Roll, participants at the 1997 Meetings of the Western Finance Association, the 1997 UCLA/USC/UC Irvine conference, the November 1997 Asset Pricing Meeting of the National Bureau of Economic Research, the Atlanta Forum, and seminars at Columbia, Indiana, Florida, New York, Tulane, and Yale Universities; Eugene Fama and Ken French for providing part of the data used in this study; and Christoph Schenzler for excellent programming assistance. The second author acknowledges support from the Dean's Fund for Research and the Financial Markets Research Center at Vanderbilt University. We are responsible for remaining errors. This paper was formerly titled `A Re-Examination of Security Return Anomalies'.1 1995An Empirical Analysis of the Limit Order Book and the Order Flow in the Paris Bourse 1997Why Do Security Prices Change? A Transaction-Level Analysis of NYSE Stocks

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