Continuous Trading or Call Auctions: Revealed Preferences of Investors at the Tel Aviv Stock Exchange


  • Avner Kalay,

  • Li Wei,

  • Avi Wohl

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    • Kalay is from Tel Aviv University and The University of Utah, Wei is from Iowa State University, and Wohl is from Tel Aviv University. We wish to thank Yakov Amihud, Bruno Biais, Andrew Ellul, Laurent Germain, Joel Hasbrouck, Eugene Kandel, Shmuel Kandel, an anonymous referee, the editor (René Stulz), participants in the seminars of Tel Aviv University, Hebrew University, the University of Utah, the Interdisciplinary Center Herzelia, the CEPR Symposium at Gerzensee 1999, The SEC, Bar Ilan University, and the Board of Directors of the Association of the Tel Aviv Stock Exchange (TASE) listed corporations for their helpful comments. We are grateful to the management of the TASE and to its Computer and Operations and Trading departments for their thoughtful comments and for providing us the data. We thank the Pinhas Sapir Center for Development at Tel Aviv University for partial financial support. Kalay thanks the Israel Institute of Business Research at Tel Aviv University for partial financial support.


We use the move of Israeli stocks from call auction trading to continuous trading to show that investors have a preference for stocks that trade continuously. When large stocks move from call auction to continuous trading, the small stocks that still trade by call auction experience a significant loss in volume relative to the overall market volume. As small stocks move to continuous trading, they experience an increase in volume and positive abnormal returns because of the associated increase in liquidity. Overall, though, a move to continuous trading increases the volume of large stocks relative to small stocks.