The anatomy of a call market : evidence from Germany

  • This paper provides a detailed empirical analysis of the call auction procedure on the German stock exchanges. The auction is conducted by the Makler whose position resembles that of a NYSE specialist. We use a dataset which contains information about all individual orders for a sample of stocks traded on the Frankfurt Stock Exchange (FSE). This sample allows us to calculate the cost of transacting in a call market and compare them to the costs of transacting in a continuous market. We find that transaction costs for small transactions in the call market are lower than the quoted spread in the order book of the continuous market whereas transaction costs for large transactions are higher than the spread in the continuous market. We further address the question whether active participation of the Makler is advantageous. On the one hand he may accomodate order imbalances, increase the liquidity of the market and stabilize prices. On the other hand, the discretion in price setting gives him an incentive to manipulate prices. This may increase return volatility. Our dataset identifies the trades the Maklers make for their own accounts. We eliminate these trades and determine the price that would have obtained without their participation. Comparing this hypothetical price series to the actual transaction prices, we find that Makler participation tends to reduce return volatility. A further analysis shows that the actual prices are much closer to the surrounding prices of the continuous trading session than the hypothetical prices that would have obtained without Makler participation. These results indicate that the Maklers provide a valuable service to the market. We further calculate the profits associated with the positions taken by the Maklers and find that, on average, they do not earn profits on the positions they take. Their compensation is thus restricted to the commissions they receive.

Download full text files

Export metadata

Author:Carl-Heinrich Kehr, Jan Pieter KrahnenORCiDGND, Erik TheissenORCiDGND
Parent Title (German):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 23
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (23)
Publisher:Johann-Wolfgang-Goethe-Universität, Frankfurt am Main, Fachbereich Wirtschaftswissenschaften
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:1998
Year of first Publication:1998
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2020/08/31
Tag:Call Markets; Liquidity; Price Formation; Specialist Trading
GND Keyword:Deutschland; Börse; Börsenmakler; Börsenhändler; Mikrostrukturtheorie <Kapitalmarkttheorie>; Börsenkurs; Handelsvolumen; Markteffizienz; Kapitalmarkteffizienz; Schätzung
Page Number:35
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht