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Price formation in call auctions with insider information

Tobias Brünner (Lincoln International Business School, Lincoln, UK)

Studies in Economics and Finance

ISSN: 1086-7376

Article publication date: 15 July 2019

Issue publication date: 8 August 2019




This study aims to investigate – theoretically and empirically – if call auctions incorporate asymmetric information into prices.


First, this study introduces a new model of price formation in a call auction with insider information. In this call auction model, insider trading gives rise to an asymmetric information component of transaction costs. Next, this study estimates the model using 20 stocks from Euronext Paris and investigates if the asymmetric information component is present.


The theoretical analysis reveals that call auctions incorporate asymmetric information into prices. The empirical analysis finds strong evidence for the asymmetric information component. Testable implications provide further support for the model.

Practical implications

Call auctions have recently been proposed as an alternative to continuous limit order book markets to overcome problems associated with high-frequency trading. However, it is still an open question whether call auctions efficiently aggregate asymmetric information. The findings of this study imply that call auctions facilitate price discovery and, therefore, are a viable alternative to continuous limit order book markets.


There is no generally accepted measure of trading costs for call auctions. Therefore, the measure introduced in this study is of great value to anyone who wants to quantify trading costs in call auctions, understand the determinants of trading costs in call auctions or compare trading costs and their components between continuous markets and call auctions. This study also contributes to the literature devoted to estimating the probability of information-based trading.



The author is grateful to Guido Friebel, Thomas Gehrig, Michael Pagano, Robert Schwartz and Erik Theissen for valuable comments. The author thanks seminar audiences at the University of Freiburg, Humboldt Copenhagen Conference (Berlin), European Financial Management Association Meeting (Braga) and LEAF Research Seminar (Lincoln).


Brünner, T. (2019), "Price formation in call auctions with insider information", Studies in Economics and Finance, Vol. 36 No. 3, pp. 408-426.



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