U.S. Exchange Auction Trends: Recent Opening and
Closing Auction Behavior, and the Implications
on Order Management Strategies

Abstract

The trends and trading styles around the exchanges’ opening auction (OPEN) and closing auction (CLOSE) volumes are evaluated over the period January 2009–June 2010. Kissell and Lie find that,overall, small-cap stocks have higher auction percentages than large-cap stocks;NYSE large-cap stocks have higher auction percentages (CLOSE% and OPEN%) than NASDAQ large-cap stocks, but NASDAQ small-cap stocks have higher CLOSE% and OPEN% than the NYSE; and no long-term trends in auction volumes or any seasonal patterns are uncovered. A day-of-week effect (Fridays), however, demonstrates a higher daily percentage of auction volumes than any other day of the week. Special event days, such as FOMC, triple witching, earnings, index changes,month and quarter end, before/after holidays, and early close days, are also evaluated. The authors find that triple witching days are associated with higher CLOSE% and OPEN%, and that the FOMC is associated with lower CLOSE% and OPEN%. The other special event days are associated with an increase in CLOSE% and a decrease in OPEN%, or vice versa; for example, index change days are associated with a much higher CLOSE%, but a much lower OPEN%. A correlation study between daily volumes and auction volumes and the percentages of daily and auction volumes shows that, as expected, a positive correlation between raw daily volumes and auction volumes exists, but a negative correlation between daily volumes and auction volume percentages is also present.

TOPICS: Analysis of individual factors/risk premia, exchanges/markets/clearinghouses, equity portfolio management