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The price discovery of day trading activities in futures market

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  • Ming-Hsien Chen

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  • Vivian Tai

    ()

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    Abstract

    Access to information is necessary for market transparency. However, contrary to trading volume and open interest, information related to day trading activities is rarely available. By incorporating unexplored day trading volume in the literature, this paper demonstrates that both the expected open interest and expected day trading volume are consistently and positively correlated with returns, but that one-lagged day trading volume is negatively correlated with futures returns. Meanwhile, both expected and unexpected day trading volume are negatively correlated with volatility, suggesting that arbitrage activities related to unexpected day trading volume may accelerate the movement of futures prices to a new equilibrium. Moreover, open interest provides liquidity but increases volatility. Finally, we strongly suggest that day trading transaction information be released by futures exchanges to achieve greater transparency. Copyright Springer Science+Business Media New York 2014

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    Bibliographic Info

    Article provided by Springer in its journal Review of Derivatives Research.

    Volume (Year): 17 (2014)
    Issue (Month): 2 (July)
    Pages: 217-239

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    Handle: RePEc:kap:revdev:v:17:y:2014:i:2:p:217-239

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    Web page: http://www.springerlink.com/link.asp?id=102989

    Related research

    Keywords: Day trading volume; Price discovery; Unexpected shocks; Stock index futures; G12; G13; G14; C22;

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