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Electronic versus open outcry trading in agricultural commodities futures markets

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Author Info

  • Martinez, Valeria
  • Gupta, Paramita
  • Tse, Yiuman
  • Kittiakarasakun, Jullavut
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    Abstract

    The Chicago Board of Trade (CBOT) introduced side by side trading of its agricultural futures commodities in August 2006. We analyze and compare market quality conditions in corn, soybeans, and wheat futures when these contracts trade simultaneously on open outcry and electronic trading venues. We find that volume migrates from floor trading to electronic trading and transaction costs are higher for floor than for screen-based trading. Nonetheless, we observe that both trading venues contribute significantly to price discovery. Given the recent surge in volatility in commodities futures markets, we also investigate activity variables such as volume that can help explain volatility in the two different trading platforms. We find that for agricultural commodities, variables that help describe volatility are not characteristic of the type of trading venue.

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    Bibliographic Info

    Article provided by Elsevier in its journal Review of Financial Economics.

    Volume (Year): 20 (2011)
    Issue (Month): 1 (January)
    Pages: 28-36

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    Handle: RePEc:eee:revfin:v:20:y:2011:i:1:p:28-36

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    Web page: http://www.elsevier.com/locate/inca/620170

    Related research

    Keywords: Corn Commodity futures Market quality Soybeans Wheat;

    References

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    14. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
    15. Frank, Julieta & Garcia, Philip, 2008. "Market Depth in Lean Hog and Live Cattle Futures Markets," 2008 Conference, April 21-22, 2008, St. Louis, Missouri 37613, NCCC-134 Conference on Applied Commodity Price Analysis, Forecasting, and Market Risk Management.
    16. Blennerhassett, Michael & Bowman, Robert G., 1998. "A change in market microstructure: the switch to electronic screen trading on the New Zealand stock exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 261-276, December.
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    Cited by:
    1. Janzen, Joseph P. & Carter, Colin A. & Smith, Aaron D., 2012. "The Quality of Price Discovery and the Transition to Electronic Trade: The Case of Cotton Futures," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124994, Agricultural and Applied Economics Association.

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