Professor Alex Frino, Deputy Vice Chancellor and Professor of Economics at the University of Wollongong Dubai, has released the results of a study into the impact of closing calls on market quality in Dubai and Abu Dhabi.
The Abu Dhabi Securities Exchange and Dubai Financial Market introduced closing call auctions in January 2013 and May 2014 respectively. Professor Frino said while previous research was mixed on the efficacy of closing calls, data showed that the introduction of closing calls in the UAE had been positive.
“There have been conflicting studies on whether closing calls improve market quality or not – one recent piece of research found the closing call impaired quality on Hong Kong Exchange, and another looked at the Australian Stock Exchange and found it improved quality there. Our study showed a reduction in price volatility and trading volume in the closing call, but no significant change in bid-ask spreads. We conclude that in reducing the volatility of the reported price, market quality on both exchanges has been improved.”
The study looked at the most liquid stocks on both venues and examined bid-ask spreads, price volatility and trading volume. It was co-authored by Michael Garcia from the Sydney Business School, University of Wollongong.
Closing call auctions are market mechanisms whereby buyers set a minimum buy price and sellers a minimum sell price for a given number of securities over a short period (in these cases ten minutes). At the end of the auction, orders are matched to form a contract.