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The price discovery of day trading activities in futures market

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  • Ming-Hsien Chen
  • Vivian Tai

Abstract

Access to information is necessary for market transparency. However, contrary to trading volume and open interest, information related to day trading activities is rarely available. By incorporating unexplored day trading volume in the literature, this paper demonstrates that both the expected open interest and expected day trading volume are consistently and positively correlated with returns, but that one-lagged day trading volume is negatively correlated with futures returns. Meanwhile, both expected and unexpected day trading volume are negatively correlated with volatility, suggesting that arbitrage activities related to unexpected day trading volume may accelerate the movement of futures prices to a new equilibrium. Moreover, open interest provides liquidity but increases volatility. Finally, we strongly suggest that day trading transaction information be released by futures exchanges to achieve greater transparency. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Ming-Hsien Chen & Vivian Tai, 2014. "The price discovery of day trading activities in futures market," Review of Derivatives Research, Springer, vol. 17(2), pages 217-239, July.
    • Handle: RePEc:kap:revdev:v:17:y:2014:i:2:p:217-239
    DOI: 10.1007/s11147-014-9096-x
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    2. Liew, Ping-Xin & Lim, Kian-Ping & Goh, Kim-Leng, 2020. "Does proprietary day trading provide liquidity at a cost to investors?," International Review of Financial Analysis, Elsevier, vol. 68(C).
    3. Elina Pradkhan, 2016. "Information Content of Trading Activity in Precious Metals Futures Markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 36(5), pages 421-456, May.

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    More about this item

    Keywords

    Day trading volume; Price discovery; Unexpected shocks; Stock index futures; G12; G13; G14; C22;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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