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Market Liquidity Behaviour in Futures Markets: Empirical Evidence


  • Fathi ABID

    (Professor of Finance University of Sfax: UR: MO.DE.S.FI Faculty of Business and Economics of Sfax, TUNISIA)

  • Lotfi TRABELSI

    (Assistant professor of finance University of Sfax: UR: MO.DE.S.FI IHEC-Sfax)


In this study, we examine the relations between the three keys variables of liquidity such as trading volume, bid-ask spread, and intraday price volatility. Hausman’s (1978) tests of specification confirmed that trading volume, bid-ask spread and intraday price volatility are jointly determined. Our study, leaded with a different approach to estimate the three parameters in a three-equation simultaneous structural model, confirm Hausman’s (1978) conclusions. Empirical analysis, based on eight financial futures contracts, the most actively traded futures contracts in the Chicago Board of Trade (CBT) and the Chicago Mercantile Exchange (CME) markets, use the generalized method of moments (GMM) procedure. Empirical results, supporting theoretical developments, indicate the existence of a simultaneous relationship between these three variables of financial markets liquidity.

Suggested Citation

  • Fathi ABID & Lotfi TRABELSI, 2012. "Market Liquidity Behaviour in Futures Markets: Empirical Evidence," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 192-206, March.
  • Handle: RePEc:asi:aeafrj:2012:p:192-206

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    References listed on IDEAS

    1. Clark, Peter K, 1973. "A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices," Econometrica, Econometric Society, vol. 41(1), pages 135-155, January.
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    4. French, Kenneth R. & Roll, Richard, 1986. "Stock return variances : The arrival of information and the reaction of traders," Journal of Financial Economics, Elsevier, vol. 17(1), pages 5-26, September.
    5. Epps, Thomas W & Epps, Mary Lee, 1976. "The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture-of-Distributions Hypothesis," Econometrica, Econometric Society, vol. 44(2), pages 305-321, March.
    6. Amihud, Yakov & Mendelson, Haim, 1980. "Dealership market : Market-making with inventory," Journal of Financial Economics, Elsevier, vol. 8(1), pages 31-53, March.
    7. Copeland, Thomas E, 1976. "A Model of Asset Trading under the Assumption of Sequential Information Arrival," Journal of Finance, American Finance Association, vol. 31(4), pages 1149-1168, September.
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