The Trading Behavior of Attention Securities with Different Closing Mechanisms: Evidence from Taiwan

On 1 July, 2002, the Taiwan Stock Exchange changed its closing mechanism to a five-minute call auction to limit market manipulation at day's end and enhance the fairness of the closing price. This paper examines the effect of the new closing mechanism on the behavior of attention securities and analyzes the role of each trader type in attention securities' behavior. After the new mechanism, market volatility improved, trading activity and order aggressiveness reduced, while liquidity deteriorated. The closing prices of attention securities are mainly influenced by large individual investors and by domestic institutions, with the large individual investors showing the most intention to influence prices upward during the closing interval both before and after implementation of the five-minute call auction. However, introduction of the five-minute call auction made it more difficult and costly to influence closing prices.