Trading platform, market volatility and pricing efficiency in the floor-traded and E-mini index futures markets
This study examines the pricing efficiency of E-mini and floor-traded index futures under electronic versus open-outcry trading platforms. By using OLS and quantile regressions to control for changes in market characteristics, we find that pricing errors are smaller in the E-mini markets than the floor-traded markets, thereby confirming that electronic trading has special attractions for arbitrageurs and informed traders. However, during periods of higher volatility, the advantages of speedier execution, anonymity and information efficiency may be offset by arbitrage risks; as a result, larger pricing errors are observed in the E-mini markets. We provide new evidence confirming the important roles in pricing efficiency played by both traditional open-outcry systems and electronic trading systems.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kurov, Alexander & Lasser, Dennis J., 2004. "Price Dynamics in the Regular and E-Mini Futures Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 365-384, June.
- Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
- Paul Kofman & James Moser, 1997.
"Spreads, information flows and transparency across trading systems,"
Applied Financial Economics,
Taylor & Francis Journals, vol. 7(3), pages 281-294.
- Paul Kofman & James T. Moser, 1995. "Spreads, information flows and transparency across trading systems," Working Paper Series, Issues in Financial Regulation 95-1, Federal Reserve Bank of Chicago.
- Shleifer, Andrei & Vishny, Robert W, 1997.
" The Limits of Arbitrage,"
Journal of Finance,
American Finance Association, vol. 52(1), pages 35-55, March.
- Andrei Shleifer & Robert W. Vishny, 1995. "The Limits of Arbitrage," NBER Working Papers 5167, National Bureau of Economic Research, Inc.
- Andrei Shleifer ad Robert W. Vishny, 1995. "The Limits of Arbitrage," Harvard Institute of Economic Research Working Papers 1725, Harvard - Institute of Economic Research.
- Black, Fischer, 1986. " Noise," Journal of Finance, American Finance Association, vol. 41(3), pages 529-43, July.
- Robert Bloomfield & Maureen O'Hara & Gideon Saar, 2009. "How Noise Trading Affects Markets: An Experimental Analysis," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2275-2302, June.
- Franke, Gunter & Hess, Dieter, 2000. "Information diffusion in electronic and floor trading," Journal of Empirical Finance, Elsevier, vol. 7(5), pages 455-478, December.
- Barber, Brad M. & Odean, Terrance & Zhu, Ning, 2009. "Systematic noise," Journal of Financial Markets, Elsevier, vol. 12(4), pages 547-569, November.
- Chung, Y Peter, 1991. " A Transactions Data Test of Stock Index Futures Market Efficiency and Index Arbitrage Profitability," Journal of Finance, American Finance Association, vol. 46(5), pages 1791-809, December.
- Nicholas Barberis & Richard Thaler, 2002.
"A Survey of Behavioral Finance,"
NBER Working Papers
9222, National Bureau of Economic Research, Inc.
- Parkinson, Michael, 1980. "The Extreme Value Method for Estimating the Variance of the Rate of Return," The Journal of Business, University of Chicago Press, vol. 53(1), pages 61-65, January.
- Koenker,Roger, 2005.
Cambridge University Press, number 9780521608275, june. pag.
- De Long, J Bradford, et al, 1990.
" Positive Feedback Investment Strategies and Destabilizing Rational Speculation,"
Journal of Finance,
American Finance Association, vol. 45(2), pages 379-95, June.
- J. Bradford De Long & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1989. "Positive Feedback Investment Strategies and Destabilizing Rational Speculation," NBER Working Papers 2880, National Bureau of Economic Research, Inc.
- Patricia Chelley-Steeley, 2005. "Noise and the Trading Mechanism: the Case of SETS," European Financial Management, European Financial Management Association, vol. 11(3), pages 387-424.
- Connolly, Robert A., 1989. "An Examination of the Robustness of the Weekend Effect," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(02), pages 133-169, June.
- Richard Roll & Eduardo Schwartz & Avanidhar Subrahmanyam, 2007. "Liquidity and the Law of One Price: The Case of the Futures-Cash Basis," Journal of Finance, American Finance Association, vol. 62(5), pages 2201-2234, October.
- Shleifer, Andrei & Summers, Lawrence H, 1990. "The Noise Trader Approach to Finance," Journal of Economic Perspectives, American Economic Association, vol. 4(2), pages 19-33, Spring.
- Shleifer, Andrei, 2000. "Inefficient Markets: An Introduction to Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780198292272, May.
- Joel Hasbrouck, 2003. "Intraday Price Formation in U.S. Equity Index Markets," Journal of Finance, American Finance Association, vol. 58(6), pages 2375-2400, December.
- deB. Harris, Frederick H. & McInish, Thomas H. & Shoesmith, Gary L. & Wood, Robert A., 1995. "Cointegration, Error Correction, and Price Discovery on Informationally Linked Security Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(04), pages 563-579, December.
- Martens, Martin, 1998. "Price discovery in high and low volatility periods: open outcry versus electronic trading," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 8(3-4), pages 243-260, December.
- Christopher L. Gilbert & Herbert A. Rijken, 2006. "How is Futures Trading Affected by the Move to a Computerized Trading System? Lessons from the LIFFE FTSE 100 Contract," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(7-8), pages 1267-1297.
- Jones, Charles M & Kaul, Gautam & Lipson, Marc L, 1994. "Transactions, Volume, and Volatility," Review of Financial Studies, Society for Financial Studies, vol. 7(4), pages 631-51.
- Fung, Joseph K.W. & Lien, Donald & Tse, Yiuman & Tse, Yiu Kuen, 2005. "Effects of electronic trading on the Hang Seng Index futures market," International Review of Economics & Finance, Elsevier, vol. 14(4), pages 415-425.
- Huang, Roger D. & Stoll, Hans R., 1996. "Dealer versus auction markets: A paired comparison of execution costs on NASDAQ and the NYSE," Journal of Financial Economics, Elsevier, vol. 41(3), pages 313-357, July.
When requesting a correction, please mention this item's handle: RePEc:eee:reveco:v:19:y:2010:i:4:p:742-754. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.