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Market Makers V's The General Public: A First Look at S&P500 Futures Trade Data

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    Abstract

    This paper considers 15 minute records of trading volume and traded prices coinciding with the reporting intervals required by the Commodity Futures Trading Commission. Records are extracted from trade records for market trade and also two way trade between market makers (CT1) and the general public (CT4) from January 1994 to June 2004. Futures price records are matched with S&P500 cash index price records. Simultaneous volatility models are specified and estimated to test trading volume to futures volatility lead/lag effects and also futures volatility to cash index volatility lead/lag effects. As we disaggregate from the market records to CT1 and CT4 records and further into year to year samples volume to futures volatility leading effects and also futures volatility to cash volatility leading effects dominate. The results raise important issues for risk management and dynamic hedging models employing intra-day trader data. A number of important issues for further analysis are also raised in this paper.

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    File URL: http://www.deakin.edu.au/buslaw/aef/workingpapers/papers/2008_02aef.pdf
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    Bibliographic Info

    Paper provided by Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance in its series Accounting, Finance, Financial Planning and Insurance Series with number 2008_02.

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    Length: 86 pages
    Date of creation: 21 Sep 2008
    Date of revision:
    Handle: RePEc:dkn:acctwp:aef_2008_02

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    Related research

    Keywords: S&P500 Trade Data; Simultaneous Volatility; Volume; Lead/Lag;

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    1. Gourieroux Christian & Monfort Alain & Trognon A, 1981. "Pseudo maximum likelihood methods : theory," CEPREMAP Working Papers (Couverture Orange) 8129, CEPREMAP.
    2. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
    3. Chan, Kalok & Chan, K C & Karolyi, G Andrew, 1991. "Intraday Volatility in the Stock Index and Stock Index Futures Markets," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 657-84.
    4. Amihud, Yakov & Mendelson, Haim, 1987. " Trading Mechanisms and Stock Returns: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 42(3), pages 533-53, July.
    5. John Board & Gleb Sandmann & Charles Sutcliffe, 2001. "The Effect of Futures Market Volume on Spot Market Volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7&8), pages 799-819.
    6. Gannon, G.L., 1994. "Simultaneous Volatility Effects in Index Futures," Papers 94-1, Melbourne - Centre in Finance.
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