Silvio John Camilleri

The impact of the suspension of opening and closing call auctions: Evidence from the National Stock Exchange of India

A hotly debated issue in the market microstructure literature is the effectiveness of call auctions as against continuous trading systems. In this paper we investigate this issue by studying the impact of the suspension of opening and closing call auctions by the National Stock Exchange of India in 1999. We compare the volatility, efficiency and liquidity (VEL) of securities in the market before and after suspension, and estimate the value of the auctions to traders by carrying out an event study. Contrary to expectation, we find that VEL factors improved following the suspension, and the CARs were significant but were not uniformly positive or negative. As a partial explanation for these results, we find that less liquid stocks traded less in the auctions than did other securities, especially at the opening, and they experienced the most gains following the suspension. This suggests that less liquid stocks did not gain the expected benefits from the auctions, and therefore that it cannot be assumed that a call auction system will improve share trading in a less liquid emerging market. Future research in this area will need to pay attention to the composition of the shares being traded and to the nature of the trading process in different shares in the market.

Do call auctions curtail price volatility? Evidence from the National Stock Exchange of India

Purpose - – The purpose of this paper is to empirically investigate whether call auctions which batch orders for simultaneous execution, may restrain stock market volatility. Design/methodology/approach - – The authors use high-frequency data to investigate volatility changes following the suspension of opening and closing call auctions on the National Stock Exchange (NSE) of India in 1999. The authors evaluate this issue by considering both modelled and realised volatility. Using a GARCH approach the authors model intra-day volatility for the trading days preceding and succeeding the auction suspension. The authors also scrutinise return distributions to look for volatility changes during different parts of the day. Findings - – When interpreted collectively, the empirical results suggest that the auction suspension was followed by reduced volatility particularly in the middle of the trading day and at the closing. Practical implications - – Given that auctions are often incorporated in trading systems with the aim of curtailing volatility, the main conclusion, that the auction suspension was followed by lower volatility, has important practical inferences. Auctions cannot be automatically relied on to reduce volatility. The intricacies of the auction protocol and their interaction with ancillary market microstructure features may impact on auction efficacy. Originality/value - – The paper adopts a novel approach towards assessing the effectiveness of auctions by considering an unusual occurrence of an auction suspension. The empirical setting enables a clear comparison of the respective regimes since these periods do not materially differ in other subsidiary aspects. This is a noteworthy factor, since the empirical contexts considered in prior studies, often feature several simultaneous changes.

Stock market predictability: Non-synchronous trading or inefficient markets? Evidence from the national stock exchange of India

Purpose - – The main objective of this study is to obtain new empirical evidence on non-synchronous trading effects through modelling the predictability of market indices. Design/methodology/approach - – The authors test for lead-lag effects between the Indian Nifty and Nifty Junior indices using Pesaran–Timmermann tests and Granger-Causality. Then, a simple test on overnight returns is proposed to infer whether the observed predictability is mainly attributable to non-synchronous trading or some form of inefficiency. Findings - – The evidence suggests that non-synchronous trading is a better explanation for the observed predictability in the Indian Stock Market. Research limitations/implications - – The indication that non-synchronous trading effects become more pronounced in high-frequency data suggests that prior studies using daily data may underestimate the impacts of non-synchronicity. Originality/value - – The originality of the paper rests on various important contributions: overnight returns is looked at to infer whether predictability is more attributable to non-synchronous trading or to some form of inefficiency; the impacts of non-synchronicity are investigated in terms of lead-lag effects rather than serial correlation; and high-frequency data is used which gauges the impacts of non-synchronicity during less active parts of the trading day.

The effect of dividend policy on share price volatility: an analysis of Mediterranean banks’ stocks

The purpose of this paper is to investigate the relationship between the share price volatility of Mediterranean banks and their dividend policies, with particular emphasis on the variation of results across sub-samples and the outcomes when omitting outlier observations.,The authors use dividend yield and dividend payout as proxies of dividend policy, and regress these ratios together with other control variables to model volatility. The robustness of the results is assessed by re-using a data set which omits the outliers relating to the aftermath of the 2007 financial crisis and by forming sub-samples using cluster analysis.,The results show that the elimination of outliers and the setting up of sub-samples lead to different inferences about the underlying relationship between dividend policy and volatility. In addition traditional indicators of statistical significance may give the impression of a robust relationship, when this may not be the case.,The paper offers insights to stock traders and corporate managers in terms of better understanding the effect of dividend policies on share price volatility and its related risks and opportunities.,The study presents noteworthy empirical evidence in terms of its rigorous approach towards checking the robustness of results.