Auction Volume and Market Concentration
The Xetra HHI files provide a measure of market concentration on a stock-by-stock basis including for subsets of trades - only aggressive, only passive, only auctions, only continuous trading, only customer (agency), only non-customer (market makers & prop) and within each subset further split into buy and sell side.
For each bucket it also includes the traded volume within this bucket. This makes it easy to compute the contributions of each bucket to the overall daily volume. For example, aggressive buying or customer selling.
In Fig. 1 below I plot for each DAX40 constituent and day the market concentration in the auctions. I show the more concentrated side (light blue) and and less concentrated side (dark blue) separately. For reasons I explained before, I prefer to show the inverse Herfindahl-Hirschman-Index (HHI). The dashed lines are linear regressions.
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Suppose a single participant wanted to buy a large quantity of shares in the closing auction (and thereby pushing up the contribution of the closing auction to the overall volume). All else being equal, I would assume that a number of different counterparty would take the opposite side. This would result in a higher market concentration on one side which the HHI on the other side would be unaffected. This would suggest that the HHI of the more concentrated side should increase (or the inverse HHI decrease) with increasing auction market share while the less concentrated should not depend on the auction volume.
We do see the former. But curiously we see that the market concentration increases on both sides for large auctions - both regressions have the same slope. Not sure what to make of this. Maybe just a small subset of participants are ready to provide the required liquidity? Or there is an equally small subset of participants who have a strong convictions on either side?
Also interesting to see that occasionally the auctions can make up a huge fraction of the daily volume - sometimes exceeding 80%. This is typically seen at the last trading day of the month and on expiry dates of the quarterly options.
CEO @ Etna Research - Frontier AI for public capital markets | @macro_fintech on X
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3 个月Interesting data- we know that large institutions target the closing auction for generating extra volume- which this data seems to confirm. Secondly the largest single buy orders in the market are corporate buybacks- who, if they want to receive the benefit of safe harbour from market abuse, do not trade in the close- nor the majority of, if any, mid or aggressive volume. Think about that a sec- if you had to manage the risk of a huge order and yet could not access any of the liquidity events- how much extra would that cost?