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Introducing contemporaneous open-outcry and e-trading at the Chicago Board of Trade

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  • Ulibarri, Carlos A.

Abstract

This study uses a vector error correction (VEC) model to examine price-volume relationships between open outcry and e-trading at the Chicago Board of Trade. We test whether equilibrium price corrections on one system are independent of the other, and whether this price behavior is more sensitive to changes in screen-based volume as opposed to open outcry volume. Error correction terms capture an asymmetric price adjustment process led by open outcry trading. Open outcry volume (market depth) also results in price discovery by dampening price volatility on both markets. These aspects of market microstructure are relevant in identifying how newly introduced e-trading systems operate in relation to established open outcry systems,and how e-trading systems may affect the economic performance of futures exchanges generally.

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File URL: http://mpra.ub.uni-muenchen.de/14821/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14821.

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Date of creation: 2004
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Handle: RePEc:pra:mprapa:14821

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Keywords: market liquidity; e-trading; vector error correction model;

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  1. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
  2. Francis Breedon & Allison Holland, 1998. "Electronic versus open outcry markets: The case of the Bund futures contract," Bank of England working papers 76, Bank of England.
  3. Asani Sarkar & Michelle Tozzi, 1998. "Electronic trading on futures exchanges," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 4(Jan).
  4. Ulibarri, Carlos A., 1998. "Is after-hours trading informative?," MPRA Paper 14818, University Library of Munich, Germany.
  5. Ian Domowitz, 1992. "Automating the Price Discovery Process," IMF Working Papers 92/80, International Monetary Fund.
  6. Ulibarri, Carlos A. & Schatzberg, John, 2003. "Liquidity costs: Screen-based trading versus open outcry," Review of Financial Economics, Elsevier, vol. 12(4), pages 381-396.
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