Security market may be structured as call markets or continuous markets. But, why will be structured in these 2 markets? thanks.
Both the market structures have their own advantages and disadvantages. The biggest advantage of a call market is that it provides high liquidity as all traders interested in a security have to make their trades at the same time and place. The advantage of continuous market is that the traders have the flexibility to make their traders whenever they want.
Thanks! and do you know how to use a call market process to determine prices for a security?
From what I can think of, the only way values could be derived in a call market would be to predict supply and demand for a security. This would be very difficult to forecast.
While I don’t recall how the CFAI curriculum addressed this, I can answer this based on a real-life basis. Open-ended mutual funds trade in a call market; every trade is executed at market close for the day. The MF companies take a few hours to calculate the ending portfolio values, the redemptions that took place, and the purchases that were made. From this information, they come up with net asset value (NAV) at the end of the day. This NAV comes out after market hours, so you cannot trade at that price. In fact, the next trade that takes place will be executed at the NAV of the following market day, upon the close of the call market.
From this, you can see that the NAV of the fund is determined by the securities it owns at the end of the day. The security prices are not determined by the NAV.
Hope this helps!