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Tick size reduction, execution costs, and informational efficiency in the regular and E‐mini Nasdaq‐100 index futures markets

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  • Alexander Kurov

Abstract

On April 2, 2006, the Chicago Mercantile Exchange reduced the minimum tick size of the floor‐traded and E‐mini Nasdaq‐100 futures from 0.5 to 0.25 index points. This study examines the effect of this change in the contract design on execution costs, informational efficiency, and price discovery. The results show a significant reduction in the effective spreads in both of the contract markets but especially in the electronically traded E‐mini futures. The paper also finds that the tick size reduction has improved price discovery and informational efficiency in the E‐mini futures market. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:871–888, 2008

Suggested Citation

  • Alexander Kurov, 2008. "Tick size reduction, execution costs, and informational efficiency in the regular and E‐mini Nasdaq‐100 index futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(9), pages 871-888, September.
    • Handle: RePEc:wly:jfutmk:v:28:y:2008:i:9:p:871-888
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    Cited by:

    1. Syamsul Idul Adha & A. Sakir, 2021. "Effect of Minimum Tick Size Policy on Price Efficiency and Execution Cost," Capital Markets Review, Malaysian Finance Association, vol. 29(2), pages 29-41.
    2. Martinez, Valeria & Tse, Yiuman, 2019. "The impact of tick-size reductions in foreign currency futures markets," Finance Research Letters, Elsevier, vol. 28(C), pages 32-38.
    3. Chakrabarty, Bidisha & Cox, Justin & Upson, James E., 2022. "Tick Size Pilot Program and price discovery in U.S. stock markets," Journal of Financial Markets, Elsevier, vol. 59(PB).
    4. Damien Wallace & Petko S. Kalev & Guanhua Lian, 2019. "The evolution of price discovery in us equity and derivatives markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1122-1136, September.
    5. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 2-2013.
    6. Sunil S. Poshakwale & Jude W. Taunson & Anandadeep Mandal & Michael Theobald, 2019. "Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1135-1163, November.
    7. Murphy Jun Jie Lee, 2013. "The Microstructure of Trading Processes on the Singapore Exchange," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 4, July-Dece.

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