Who Trades at the Close? Implications for Price Discovery and Liquidity

Closing auctions set daily closing prices for U.S. stocks and account for a striking 7.5% of daily volume in 2018, up from 3.1% in 2010. We study the causes and implications of this major trend. Difference-in-difference analyses suggest that closing volume is fueled directly and indirectly by the growth of indexing and ETFs. Auctions usually match large volume cheaply. However, we identify several concerns. The auction price almost never settles within the bid-ask spread, mostly due to the binding tick size. Auction price deviations revert quickly and completely. Finally, as trading migrates to the close, liquidity at the open worsens.