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Article
Publication date: 15 July 2019

Tobias Brünner

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

Abstract

Purpose

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

Design/methodology/approach

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.

Findings

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.

Originality/value

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.

Details

Studies in Economics and Finance, vol. 36 no. 3
Type: Research Article
ISSN: 1086-7376

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Article
Publication date: 18 August 2020

Dan Ma, Chunfeng Wang, Zhenming Fang and Ziwei Wang

The purpose of this paper is to empirically examine the impact of closing mechanism changes on market quality, investor trading behavior and market manipulation in the…

Abstract

Purpose

The purpose of this paper is to empirically examine the impact of closing mechanism changes on market quality, investor trading behavior and market manipulation in the Shanghai stock market.

Design/methodology/approach

A dummy variable is constructed indicating whether the closing mechanism is call auction or continuous auction. Market quality is measured from aspects of liquidity, volatility and price continuity; investor trading behavior is scaled by order timing and order aggressiveness, and a price deviation indicator is the proxy of manipulation. Using panel regression, this study examines the impact of closing mechanism changes based on intraday transaction data from the Shanghai stock market.

Findings

The conclusions are as follows: First, market quality improves after the closing mechanism is reformed in terms of liquidity, volatility and price continuity. Second, order strategy changes significantly in the closing call market, and investors trade more aggressively in the continuous trading period before closing. Third, the closing call mechanism restrains the closing price manipulation and thus prompts an efficient closing price.

Originality/value

This paper examines the policy effects of closing mechanism changes from aspects of market quality, trading behavior and price manipulation, providing pieces of evidence for trading mechanism design and market supervision in emerging markets.

Details

China Finance Review International, vol. 11 no. 2
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 1 August 2016

Benjamin Clapham and Kai Zimmermann

The purpose of this paper is to study price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on…

Abstract

Purpose

The purpose of this paper is to study price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on multiple venues. The results provide novel empirical insights questioning the generalizability of the current literature and aim to expand the understanding of price determination in a fragmented market microstructure.

Design/methodology/approach

This paper provides an empirical data analysis based on an event study methodology. The authors applied Thomson Reuters Tick History data covering German blue chip stocks listed on multiple venues in 2009 and 2013. Different time aggregations up to one second are applied to provide an in-depth analysis.

Findings

The paper empirically discovers a persistent price leader-follower relationship not only during intraday auctions but also in subsequent continuous trading. The authors found that trading on alternative venues instantly dries out in case the dominant market switches to a call auction. In these situations, alternative markets await and adopt the official price signal of the dominant market although prices on alternative venues still indicate a certain extent of price discovery. This phenomenon remains persistent at different levels of market fragmentation, indicating that alternative trading venues fully accept the price leadership role of the dominant market, no matter their own market share.

Originality/value

This paper provides an innovative empirical setup to analyze price co-movement and convergence based on high-frequent data. Further, the results provide novel and robust insights into the price determination process in fragmented markets that clarify the role of price follower and price leader.

Details

International Journal of Managerial Finance, vol. 12 no. 4
Type: Research Article
ISSN: 1743-9132

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Article
Publication date: 1 March 2010

Pier Angelo Mori and Nicola Doni

The main aim of this paper is to review some of the newest and most promising advances in auction theory with an eye to applications to procurement practice. Here we focus…

Abstract

The main aim of this paper is to review some of the newest and most promising advances in auction theory with an eye to applications to procurement practice. Here we focus in particular on four topics related to multidimensional auctions: 1) how to define a proper scoring rule when the awarding bodies lack the necessary information regarding its own preferences and suppliers’ technology; 2) how to cope with the information disclosure policy regarding the discretional evaluation of some aspects of each contractual proposal; 3) how to use contractors’ reputations based on their past performance in the awarding process; 4) how to control the risk of collusion and corruption in the awarding phase.

Details

Journal of Public Procurement, vol. 10 no. 1
Type: Research Article
ISSN: 1535-0118

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Article
Publication date: 1 September 2005

M.L. Emiliani and D.J. Stec

The purpose of this paper is to quantitatively assess wood pallet suppliers' reaction to online reverse auctions and its impact on their business policies and practices.

Abstract

Purpose

The purpose of this paper is to quantitatively assess wood pallet suppliers' reaction to online reverse auctions and its impact on their business policies and practices.

Design/methodology/approach

Survey method was used to determine how pallet suppliers react to online reverse auctions.

Findings

Determines that pallet suppliers do not realize the benefits claimed by online reverse auction service providers. Identifies new sources of costs which accrue to buyers and are not accounted for in so‐called “total cost” request for quotes including: retaliatory pricing practices, less cooperative relationships, and sourcing work back to the original supplier. The qualitative benefits identified for suppliers by third‐party online reverse auction service providers are overstated or false.

Research limitations/implications

The present work can be extended to other commodity categories to identify similarities and differences in how suppliers react to online reverse auctions, understand the domain of successful and unsuccessful application of the online reverse auction tool, and provide further insight into the evolution of buyer‐seller relationships, including embedded organizational routines such as power‐based bargaining.

Practical implications

Findings mirror the results found in a previous study that examined aerospace parts suppliers' reaction to online reverse auctions, and indicates that market makers have consistently overstated the benefits of online reverse auctions to both sellers and buyers, and the use of this tool will typically result in unfavorable outcomes for both buyers and sellers.

Originality/value

This paper will be of interest to buyers, sellers, and market makers, as it identifies important problems with online reverse auctions, and suggests questions that buyers should ask market makers to ensure better sourcing decisions.

Details

Supply Chain Management: An International Journal, vol. 10 no. 4
Type: Research Article
ISSN: 1359-8546

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Article
Publication date: 17 August 2012

Deborah Lim, Patricia Anthony and Ho Chong Mun

As the demand for online auctions increases, the process of monitoring multiple auction houses, deciding which auction to participate in and making the right bids, become…

Abstract

Purpose

As the demand for online auctions increases, the process of monitoring multiple auction houses, deciding which auction to participate in and making the right bids, become challenging tasks for consumers. Hence, knowing the closing price of a given auction would be an advantage, since this information will ensure a win in a given auction. However, predicting a closing price for an auction is not easy, since it is dependent on many factors. The purpose of this paper is to report on a predictor agent that utilises grey system theory to predict the closing price for a given auction.

Design/methodology/approach

The focus of the research is on grey system agent. This paper reports on the development of a predictor agent that attempts to predict the online auction closing price in order to maximise the bidder's profit. The performance of this predictor agent is compared with two well‐known techniques, the Simple Exponential Function and the Time Series, in a simulated auction environment and in the eBay auction.

Findings

The grey theory agent gives a better result when less input data are made, while the Time Series Agent can be used with the availability of a lot of information. Although the Simple Exponential Function Agent is able to predict well with less input data, it is not an appropriate method to be applied in the prediction model since its formula is not realistic and applicable in predicting the online auction closing price. The experimental results also showed that using moving historical data produces a higher accuracy rate than using fixed historical data for all three agents.

Originality/value

Grey system theory prediction model, GM(1, 1) has not been applied in online auction prediction. In this paper the authors have applied grey theory into an agent to predict the closing price of an online auction, in order to increase the profit of bidders in the bidding stage. The experimental results show that the accuracy of the grey prediction model is more then 90 per cent, with less then eight historical data inputs.

Details

Grey Systems: Theory and Application, vol. 2 no. 2
Type: Research Article
ISSN: 2043-9377

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Article
Publication date: 28 September 2018

Xiangtianrui Kong, G.Q. Huang, Hao Luo and Benjamin P.C. Yen

While significant efforts have been made to study auction and logistics theories in the context of perishable supply chain trading (PSCT) over the last few years, the…

Abstract

Purpose

While significant efforts have been made to study auction and logistics theories in the context of perishable supply chain trading (PSCT) over the last few years, the consensus has not yet been reached on how best to examine the impact of physical-internet-enabled auction logistics (AL) decisions and processes on dynamic perishable products transactions. The purpose of this paper is to address this gap by investigating the existing situations and identifying future opportunities for both academic and industrial communities.

Design/methodology/approach

The relevant literature was sort out along with three dimensions, namely auction mechanism, level of decision and coordination. The methods of field investigation and focus group discussion were also used to explore the factors influencing AL performance.

Findings

A number of key findings presented. First, there is an emerging paradigm shift from offline auction to online auction. Robust and resilient AL are needed to fulfill the massive number of orders from different channels while considering dynamic decisions. Second, three-level decisions in AL have been explicitly classified and defined. Various mathematical techniques used in literature vis-à-vis the contexts of AL were mapped. Third, a coordination mechanism that dynamically balances trade-off between logistics efficiency and transaction price was discussed. Lastly, several opportunities for future research were distinguished with coherent connection of research domains and open questions.

Originality/value

This paper not only summaries key themes of current research dimensions, but also indicates existing deficiencies and potential research directions. The findings can be used as the basis for future research in PSCT and related topics.

Details

Industrial Management & Data Systems, vol. 118 no. 8
Type: Research Article
ISSN: 0263-5577

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Article
Publication date: 31 July 2009

James Eaves and Magali Valero

The purpose of this paper is twofold. The first is to estimate the correlation between market activity and volatility on an exchange that does not use continuous auctions

Abstract

Purpose

The purpose of this paper is twofold. The first is to estimate the correlation between market activity and volatility on an exchange that does not use continuous auctions to find prices. The second is to estimate the sensitivity of that relationship to differences in opinions across traders regarding asset value.

Design/methodology/approach

Both objectives are accomplished by using seven years of trader‐level data from the Tokyo Grain Exchange, which uses rapid sequences of Walrasian tâtonnement auctions to discover prices. On the TGE, only one futures contract trades at any given time and all of a commodity's futures contracts are auctioned in a rapid sequence, with only seconds between a sequence's auctions. The results are interpreted under the hypothesis that this design causes traders' beliefs to become more accurate and more uniform as a sequence progresses.

Findings

Intraday volume is u‐shaped while intraday volatility is downward sloping. The volume–volatility link is positive and stays constant or strengthens as traders' beliefs about value become more precise. The link is driven by trades originating from small futures commission merchants, especially those trades entered on behalf of customers.

Research limitations/implications

Evidence that accounting for cross‐correlations when estimating volatility can have an important effect on estimates is presented. Researchers are encouraged to further explore the implications of cross‐correlations.

Practical implications

The paper includes implications for existing theory, the measurement of volatility, and the design of central exchanges.

Originality/value

This paper uses the TGE as a natural laboratory to test theory. It is the first such study to use data from an exchange that does not use continuous auctions, and the first to document the simultaneous existence of u‐shape volume and downward‐sloping volatility.

Details

Agricultural Finance Review, vol. 69 no. 2
Type: Research Article
ISSN: 0002-1466

Keywords

Content available
Article
Publication date: 27 August 2019

Lihua Chen, Liying Wang and Yingjie Lan

In this paper, the main focus is on supply and demand auction systems with resource pooling in modern supply chain from a theoretical modeling perspective. The supply and…

Abstract

Purpose

In this paper, the main focus is on supply and demand auction systems with resource pooling in modern supply chain from a theoretical modeling perspective. The supply and demand auction systems in modern supply chains among manufacturers and suppliers serve as information sharing mechanisms. The purpose of this paper is to match the supply and demand such that a modern supply chain can achieve incentive compatibility and economic efficiency. The authors design such a supply and demand auction system that can integrate resources to efficiently match the supply and demand.

Design/methodology/approach

The authors propose three theoretic models of modern supply chain auctions with resource pooling according to the Vickrey auction principle. They are supply auction model with demand resource pooling, demand auction model with supply resource pooling, and double auction model with demand and supply resource pooling. For the proposed auction models, the authors present three corresponding algorithms to allocate resources in the auction process by linear programming, and study the incentive compatibility and define the Walrasian equilibriums for the proposed auction models. The authors show that the solutions of the proposed algorithms are Walrasian equilibriums.

Findings

By introducing the auction mechanism, the authors aim to realize the following three functions. First is price mining: auction is an open mechanism with multiple participants. Everyone has his own utility and purchasing ability. So, the final price reflects the market value of the auction. Second is dynamic modern supply chain construction: through auction, firm can find appropriate partner efficiently. Third is resources integration: in business practices, especially in modern supply chain auctions, auctioneers can integrate resources and ally buyers or sellers to gain more efficiency in auctions.

Originality/value

In the paper, the authors propose three theoretic models and corresponding algorithms of modern supply chain auctions with resource pooling according using the Vickrey auction principle, which achieves three functions: price mining, dynamic modern supply chain construction and resources integrating. Besides, these proposed models are much closer to practical settings and may have potential applications in modern supply chain management.

Details

Modern Supply Chain Research and Applications, vol. 1 no. 2
Type: Research Article
ISSN: 2631-3871

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Article
Publication date: 3 November 2014

Diego A. Agudelo, Ángelo Gutiérrez Daza and Nazly J. Múnera Montoya

The purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.

Abstract

Purpose

The purpose of this paper is to study the effect of X‐Stream, the new trading platform of the Colombian Stock Exchange since February 2009, on the market quality.

Design/methodology/approach

The authors test the effect of X‐Stream on market quality variables, such as liquidity (bid‐ask spread and price impact), daily and intraday volatility and trading activity, using mean tests, panel data and conditional variance models. The authors use a proprietary database of transactions and orders from the exchange.

Findings

The evidence suggests that X‐Stream improved the liquidity and trading activity and reduced the volatility of the overall market, especially of the most liquid stocks.

Practical implications

These results support the investment on more sophisticated trading systems in emerging markets.

Originality/value

Contributing to the literature on market quality, this paper provides novel evidence of the effect of reforms on market design, trading rules and operational capabilities on a small and low‐liquidity emerging stock market.

Resumen

Se investiga el efecto de la plataforma de transacción de acciones de BVC, X‐Stream, en la calidad del mercado accionario a partir de su lanzamiento en Febrero del 2009. Partiendo de una base de datos transaccional de BVC, se emplean varios modelos econométricos para medir el efecto de la nueva plataforma en las volatilidades diaria e intradiaria, la liquidez (margen proporcional de oferta y demanda e impacto en el precio) y la actividad bursátil. La evidencia demuestra que X‐Stream mejoró la liquidez y redujo la volatilidad del mercado accionario como un todo, pero especialmente en las acciones más líquidas. Esta investigación contribuye a la literatura en calidad de mercado al aportar nueva evidencia sobre el efecto de los cambios de diseño, reglas de transacción y capacidades operacionales en un mercado accionario de reducidos tamaño y liquidez. De esta manera, sirve como argumento para justificar inversiones en sistemas avanzados de transacción en mercados emergentes.

Details

Academia Revista Latinoamericana de Administración, vol. 27 no. 3
Type: Research Article
ISSN: 1012-8255

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