IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v93y2026ics1544612326001340.html

Physical settlement, liquidity, and price discovery in single stock futures; evidence from Panel Vector Error Correction Model

Author

Listed:
  • Jena, Sangram Keshari
  • Lahiani, Amine

Abstract

This study examines the price discovery in the single-stock spot and futures markets following the introduction of physical settlement in the world’s largest derivatives exchange using the novel Panel Vector Error Correction Model (PVECM). Analyzing data for ten years across stocks with varying liquidity, the full sample results indicate no meaningful price discovery between the two markets. When segmented by settlement regime, significant futures-led price discovery is observed only in the pre-physical settlement period. Liquidity in either the spot or futures market does not enhance price discovery under physical settlement. Time-varying estimates highlight notable structural breaks attributed to regulatory actions and geopolitical developments. Overall, the findings suggest that physical settlement does not achieve its intended objective of improving price discovery. Two policy implications emerge: cash settlement appears more effective, and physical settlement may be extended even to relatively illiquid stocks.

Suggested Citation

  • Jena, Sangram Keshari & Lahiani, Amine, 2026. "Physical settlement, liquidity, and price discovery in single stock futures; evidence from Panel Vector Error Correction Model," Finance Research Letters, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:finlet:v:93:y:2026:i:c:s1544612326001340
    DOI: 10.1016/j.frl.2026.109603
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612326001340
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2026.109603?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:93:y:2026:i:c:s1544612326001340. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.