How the Last Call Auction of Underlying Stock Market Affects the Price Behaviors of Continuous Trading Index Futures

By using the equality test and panel regression, we study the effects of around the last five minutes call auction of underlying stock market on price behaviors of continuous trading TAIFEX index futures. First, continuous trading enables a better reaction to new information and improved risk sharing, resulting in a larger trading volume. Moreover, high systematic volatility loadings, during the hided call auction period in stock market, will increase their price and lowers their average return. With high uncertainty during last 5 minutes call auction period with hided information, futures markets are characterized by price volatility in excess of the theoretical volatility of equilibrium prices