Call Auction and Indian Stock Market : A Study

The Bombay Stock Exchange of India Ltd (BSE) and National Stock Exchanges of India Ltd (NSE) introduced opening Call Auction (CA) mechanism to S&P BSE Sensex stocks and NSE Nifty stocks on 18th October 2010. The opening CA introduced to increase the price discovery, reduce the volatility, and to reflect the overnight information in the prices. In this paper, we investigate the efficiency of the price discovery and liquidity provided by CA. Our sample covers 2 S&P BSE Sensex stocks and 2 S&P 100 stocks for 2 years. To test the price discovery, we use the ‘adjusted R square' value as a parameter which is obtained by the market model regressions. We use Cohen et al. (1983 a, b) methodologies to measure the friction and intervalling effect of the market. The empirical results show that opening CA improves the price discovery. Further, we found less market friction and Intervalling effects in CA traded stocks compare to CEOS traded stocks