The Anatomy of a Call Market: Evidence from Germany

38 Pages Posted: 15 Nov 1999

See all articles by Carl-Heinrich Kehr

Carl-Heinrich Kehr

BankBetriebsWirtschaft Jacob & Co. KG

Jan Pieter Krahnen

Goethe University Frankfurt

Erik Theissen

University of Mannheim - Finance Area

Date Written: September 1999

Abstract

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.

JEL Classification: G10

Suggested Citation

Kehr, Carl-Heinrich and Krahnen, Jan Pieter and Theissen, Erik, The Anatomy of a Call Market: Evidence from Germany (September 1999). Available at SSRN: https://ssrn.com/abstract=163284 or http://dx.doi.org/10.2139/ssrn.163284

Carl-Heinrich Kehr

BankBetriebsWirtschaft Jacob & Co. KG ( email )

Kreuzberger Ring 21
65205 Wiesbaden
Germany
49)(611)973300 (Phone)

Jan Pieter Krahnen

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Erik Theissen (Contact Author)

University of Mannheim - Finance Area ( email )

Mannheim, 68131
Germany