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Trading platform, market volatility and pricing efficiency in the floor-traded and E-mini index futures markets

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  • Chung, Huimin
  • Sheu, Her-Jiun
  • Hsu, Shufang
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    Abstract

    This study examines the pricing efficiency of E-mini and floor-traded index futures under electronic versus open-outcry trading platforms. By using OLS and quantile regressions to control for changes in market characteristics, we find that pricing errors are smaller in the E-mini markets than the floor-traded markets, thereby confirming that electronic trading has special attractions for arbitrageurs and informed traders. However, during periods of higher volatility, the advantages of speedier execution, anonymity and information efficiency may be offset by arbitrage risks; as a result, larger pricing errors are observed in the E-mini markets. We provide new evidence confirming the important roles in pricing efficiency played by both traditional open-outcry systems and electronic trading systems.

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    File URL: http://www.sciencedirect.com/science/article/B6W4V-4YXK4N7-1/2/ca3249503a3041e01e84d7320ba32385
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    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 19 (2010)
    Issue (Month): 4 (October)
    Pages: 742-754

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    Handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:742-754

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    Web page: http://www.elsevier.com/locate/inca/620165

    Related research

    Keywords: E-mini futures Floor-traded futures Pricing efficiency Noise trader risk;

    References

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    Cited by:
    1. Kao, Erin H. & Fung, Hung-Gay, 2012. "Intraday trading activities and volatility in round-the-clock futures markets," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 195-209.
    2. Wang, Yun-Yi & Chang, Chiung-Chiao & Lee, Wan-Chen, 2013. "Price discovery between regular and mini index futures in the Taiwan Futures Exchange," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 224-237.
    3. Huang, Alex YiHou & Peng, Sheng-Pen & Li, Fangjhy & Ke, Ching-Jie, 2011. "Volatility forecasting of exchange rate by quantile regression," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 591-606, October.

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