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Market microstructure of FT‐SE 100 index futures: An intraday empirical analysis

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  • Yiuman Tse

Abstract

This article examines the market microstructure of the FT‐SE Index futures market by analyzing the intraday patterns of bid‐ask spreads and trading activity. The patterns are remarkably different from those of stock and options markets because of the futures market's open outcry system with frenzied scalpers/short‐term marketmakers. Spreads are stable over the day, but decline sharply at the close and increase when U.S. macroeconomic news is distributed. Traders actively trade at the open with narrow spreads and large trade sizes. Volatility and volume have higher values at the open and close and when U.S. news is released. The overall results suggest that information asymmetry in the index futures market is insignificant, and traders find it easy to control inventory. The results are also broadly consistent with the Grossman and Miller (1988) model that describes liquidity as the price of transaction demand for immediacy. © 1999 John Wiley & Sons, Inc. Jrl Fut Mark 19: 31–58, 1999

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  • Yiuman Tse, 1999. "Market microstructure of FT‐SE 100 index futures: An intraday empirical analysis," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(1), pages 31-58, February.
    • Handle: RePEc:wly:jfutmk:v:19:y:1999:i:1:p:31-58
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    Cited by:

    1. Garrett Ian & Taylor Nicholas, 2001. "Intraday and Interday Basis Dynamics: Evidence from the FTSE 100 Index Futures Market," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 5(2), pages 1-22, July.
    2. Nicholas Taylor, 2007. "A New Econometric Model of Index Arbitrage," European Financial Management, European Financial Management Association, vol. 13(1), pages 159-183, January.
    3. John Board & Charles Sutcliffe & Stephen Wells, 2002. "Transparency and Fragmentation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-4039-0707-3, September.

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