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Multi-market trading in the Eurodollar futures market

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Author Info
Yiuman Tse ()
Paramita Bandyopadhyay
Abstract

On March 18, 2004, the London International Financial Futures and Options Exchange launched trading in Eurodollar futures contracts in an attempt to compete with a U.S. rival, the Chicago Mercantile Exchange. The Chicago Mercantile Exchange responded to the challenge by introducing several policy changes that aided the transfer of its trading volume in Eurodollar futures from open outcry to the electronic trading platform, Globex, thereby retaining its market share. We compare trading volume, effective spread, and price discovery in Eurodollar futures at the Chicago Mercantile Exchange before and after the London International Financial Futures and Options Exchange began trading the same contract. We find a general increase in trading volume on Globex beginning October 2003, way before the London International Financial Futures and Options Exchange launched its contract. Globex provides greater price discovery than open outcry during the entire time period under study. Our research thus supports the global trend of conversion of traditional open outcry systems into electronic exchanges. Copyright Springer Science + Business Media, Inc. 2006

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File URL: http://hdl.handle.net/10.1007/s11156-006-7436-0
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Publisher Info
Article provided by Springer in its journal Review of Quantitative Finance and Accounting.

Volume (Year): 26 (2006)
Issue (Month): 3 (May)
Pages: 321-341
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Handle: RePEc:kap:rqfnac:v:26:y:2006:i:3:p:321-341

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Web page: http://springerlink.metapress.com/link.asp?id=102990

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Related research
Keywords: Eurodollar futures; Trading volume; Price discovery; Bid/ask spread;

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References listed on IDEAS
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  14. Ding, David K. & Harris, Frederick H. deB. & Lau, Sie Ting & McInish, Thomas H., 1999. "An investigation of price discovery in informationally-linked markets: equity trading in Malaysia and Singapore," Journal of Multinational Financial Management, Elsevier, vol. 9(3-4), pages 317-329, November. [Downloadable!] (restricted)
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