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Quantifying the Effects of the Inclusion and Segregation of Contracts for Difference in Australian Equity Markets

Author

Listed:
  • Shaen Corbet

    (DCU Business School (DCUBS), Dublin City University (DCU), Dublin 9, Ireland.)

  • Cian Twomey

    (J.E. Cairnes School of Business and Economics, National University of Ireland, Galway (NUIG), Ireland.)

Abstract

This study examines the effects that Contracts for Difference (CFDs) have had on the Australian equity market, either as an accelerant for mispricing, or as a source of increased market functionality through the addition of a new tradable product and increased liquidity. The Australian Securities Exchange (ASX) made the decision to segregate CFDs to a separate ring-fenced exchange in November 2007. This study uses EGARCH techniques to test for the effects of CFDs on return volatility at the time of CFD inclusion and segregation in Australian equity markets at the index and equity-specific level. A fully worked explanation and example of a CFD-influenced overhang' is also provided. The results provide evidence that cannot reject the presence of overhangs' in Australian equity markets.

Suggested Citation

  • Shaen Corbet & Cian Twomey, 2014. "Quantifying the Effects of the Inclusion and Segregation of Contracts for Difference in Australian Equity Markets," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 411-426.
    • Handle: RePEc:eco:journ1:2014-02-17
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    References listed on IDEAS

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    Cited by:

    1. Andreas Oehler & Julian Schneider, 2022. "Gambling with lottery stocks?," Journal of Asset Management, Palgrave Macmillan, vol. 23(6), pages 477-503, October.
    2. Shaen Corbet & Cian Twomey, 2014. "How Have Contracts for Difference Affected Irish Equity Market Volatility?," The Economic and Social Review, Economic and Social Studies, vol. 45(4), pages 559-577.

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    More about this item

    Keywords

    Contracts for Difference; EGARCH; equity markets; volatility.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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