Call Market Experiments: Efficiency and Price Discovery through Multiple Calls and Emergent Newton Adjustments

We study multiple-unit, laboratory experimental call markets in which orders are cleared by a single price at a scheduled “call.” The markets are independent trading “days” with two calls each day preceded by a continuous and public order flow. Markets approach the competitive equilibrium over time. The price formation dynamics operate through the flow of bids and asks configured as the “jaws” of the order book with contract execution featuring elements of an underlying mathematical principle, the Newton-Raphson method for solving systems of equations. Both excess demand and its slope play a systematic role in call market price discovery. (JEL C92, D41, D44, G14)

A Study on Foreign Banks‘ Short Borrowings and Volatilities of Stock Markets & FX Markets in Korea: Focus on aTe Derivatives

This study examines how FX OTC derivatives transactions of foreign banks’ branches funded by short term borrowings affect the volatility of stock markets and FX markets in Korea based on historical data. It founds that they use call money for FX-derivatives trading, rather than borrowings from their Head Quarter. This result also proves that their derivatives trading is funded by call market increasing stock markets’ volatility in Korea, even if foreign banks’ branches have been using various funding sources. Also the role of foreign banks’ branches as FX money supplier for the korean local banks effects to stock markets by increasing the volatility via call markets. On the other hands, derivatives liabilities of foreign banks’ branches tend to increase volatility of the korean stock markets, but their derivatives assets tend to decrease the volatility. This result together with O/N dollar call volatility should be regarded as a kind of liquidity risk because they could give serious impacts to Korean financial markets if shocks break out. When considering the main revenue source of foreign banks’ branches, derivatives trading creates much higher leverage effects to them than korean local banks, and their roles in financial and capital markets of Korea this study provides with a reason that regulators should give complex and multilateral attentions to foreign banks’ branches.

Opening and Closing the Market: Evidence from the London Stock Exchange

We investigate the performance of call markets at the open and close using a unique natural experiment provided by the London Stock Exchange where traders can choose between a call and an off-exchange dealership system. Although the call market dominates dealers in terms of price discovery, it suffers from a high failure rate to open and close trading especially when trading conditions are difficult. The call's trading costs increase with asymmetric information, slow trading, order flow imbalances, and uncertainty. Traders' resort to use of call auctions is negatively correlated with firm size, implying that the call may not be the optimal method for opening and closing trading of medium and small sized stocks.