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Order Choices, Order Execution Quality and Trading Volume: Evidence from Reductions in the Call Auction
Interval

that individual investors place fewer new orders after Reform II. Though results show that
the comprehensive risk of limit-orders significantly decreases when the auction interval
is reduced to 5 seconds, this may be the consequence of individual investors being more
conservative in their order choices, rather than individual investors being more capable of

monitoring market movements and thus having less “picking-off” risk.
Third, I find that the proportion of trade value attributable to institutional investors
significantly increased after Reform II, echoing the viewpoints of Brennan and Cao (1996),

who argue that increasing call auction frequencies (or further switching to continuous
auctions) may attract more informed traders and thus facilitate the price adjustment
regarding the newly arrived information. Eventually, the TWSE shifted the 5-second
periodical call to continuous trading on March 23, 2020. Nevertheless, regulators may
need to take into consideration what would be the cost of this regime switch. As suggested

by Budish, Cramton, and Shim (2015), continuous auction market design may easily lead
to the wasteful arms race for speed among high-frequency traders.

4. Research Limitations

The present study encounters a few of research limitations. First, the TWSE
releases the intraday trading records without provision of account identification. Therefore,
it’s impossible to discuss the reform impact on trading profit or loss regarding uninformed

and informed traders, as investigated by Barber, Lee, Liu, and Odean (2009). Second,
though I utilized the “daily time trend” (ẑ ) as an additional control variable in regression
t
models, it is, conceptually, unconformable to the standard DID approach. These are

challenging problems for subsequent study on this issue.

5 Originality/Contribution

To the best of our knowledge, there are other two journal articles focusing on the

recent reductions of auction interval on the TWSE. Wang and Chou (2018) find that the
bid-ask spread, market depths are improved when the auction interval is stepwise reduced
from 25 seconds to 15 seconds. Chan and Huang (2019) separate the sample into active
and inactive stocks, and find that these reforms significantly deteriorate market depth and

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