Market Microstructure.

• Position: Bureau News - Panel Discussion

The NBER's Working Group on Market Microstructure met in New York on May 7. Working Group Director Bruce Lehmann, NBER and University of California, San Diego, organized the program along with Joel Hasbrouck, Stern School of Business at New York University, Matthew Spiegel, Yale School of Management; and Avanidhar Subrahmanyam, Anderson School of Management at University of California, Los Angeles. These papers were discussed:

Andrew Ellul, Indiana University; Hyun Song Shin, London School of Economics; and Ian Tonks, University of Bristol, "How to Open and Close the Market: Evidence from the London Stock Exchange"

Discussant: Tavy Ronen, Rutgers University

Richard C. Green, Burton Hollifield, and Norman Schurhoff, Carnegie Mellon University, "Financial Intermediation and the Costs of Trading in an Opaque Market"

Discussant: Clifton Green, Emory University

Andy Puckett, Paul Irvine, and Marc Lipson, University of Georgia, "Tipping"

Discussant: Sorin Sorescu, Texas A&M University

Mario Panayides, Yale University, "The Specialist's Participation in Quoted Prices and the NYSE's Price Continuity Rule"

Discussant: Ashish Tiwari, University of Iowa

Ioanid Rosu, MIT, "A Dynamic Model of the Limit Order Book"

Discussant: Lawrence Glosten, Columbia University

Shmuel Baruch, University of Utah, and Gideon Saar, New York University, "Asset Returns and the Listing Choice of Firms"

Discussant: Daniel Deli, Arizona State University

Various markets, particularly NASDAQ, have been under pressure from regulators and market participants to introduce call auctions for their opening and closing periods. Ellul, Shin, and Tonks investigate the performance of call markets at the open and close via a unique natural experiment provided by the institutional structure of the London Stock Exchange. Besides a call auction, London has a parallel "off-exchange" dealership system at the market's open and close. Although the call market dominates the dealership system in terms of price discovery, the authors find that the call frequently fails to open and close trading, especially on days characterized by difficult trading conditions. In particular, the call's success decreases significantly when: asymmetric information is high; trading is expected to be slow; order flow is unbalanced; and uncertainty is high. Furthermore, traders' resorting to call auctions is negatively correlated with firm size, implying that the call auction is not the optimal method for opening and...