The effect of a closing call auction on market quality and trading strategies

Eugene Kandel*, Barbara Rindi, Luisella Bosetti

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

28 Scopus citations


We study the effects of the introduction of a closing auction (CA) on the microstructure on the continuous trading phase in Borsa Italiana and Paris Bourse. We postulate and compare several empirical predictions based on both standard Kyle-type models and more recent models of limit order book. We find that while the CA has no effect during most of the day, its effect on the last minutes of trading is dramatic. We document a sharp decline in volume, associated with a significant reduction in spread and volatility, and an increase in aggressiveness of liquidity suppliers during the last minutes. We show that the differences in the Reference Price algorithm between Milan and Paris have a significant effect: the CA attracts greater volumes when the Reference Price is equated to the CA price.

Original languageAmerican English
Pages (from-to)23-49
Number of pages27
JournalJournal of Financial Intermediation
Issue number1
StatePublished - Jan 2012

Bibliographical note

Funding Information:
We would like to thank Borsa Italiana and Paris Bourse, particularly Luca Filippa, for providing the data, for comments and support. We would also like to thank an anonymous referee, A. Admati, T. Foucault, M. Ghezzi, D.Goldreich, O. Kadan, R. Kaniel, M. Pagano, I. Tkatch, S. Viswanathan (the Editor), A. Wohl as well as participants at the Bank of Canada conference on “Microstructure of Foreign Exchange and Equity Markets” (November 2006) and at Bocconi University workshop for their comments and help. Massimo Matraia, Davide Melone, Yehuda Porath, and Stefano Rivellini provided valuable research assistance. Rindi would like to acknowledge the financial support from Bocconi University (“Ricerca di Base” Project). Kandel would like to thank the Krueger Center for Finance Research at the Hebrew University for financial support.


  • Closing auction
  • Closing price
  • Liquidity provision
  • Market design
  • Market quality
  • Price discovery
  • Reference price


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