The Anatomy of a Call Market: Evidence from Germany

This paper provides a detailed analysis of the call auction procedure on the Frankfurt Stock Exchange. Its main contribution is to develop a direct measure of the execution costs in a call auction that is comparable to the bid-ask spread in a continuous market. Applying that measure, we find that transaction costs for small transactions in the call market are lower than the quoted spread in the order book of the continuous market whereas transaction costs for large transactions in the call market are higher than the spread in the continuous market. An analysis of specialist (Makler) participation shows that the Maklers provide a valuable service to the market. On average, they do not earn profits on the positions they take. Their compensation is thus restricted to the commissions they receive.

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