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Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

Author

Listed:
  • Sunil S. Poshakwale

    (Cranfield School of Management, Cranfield University)

  • Jude W. Taunson

    (Universiti Malaysia Sabah)

  • Anandadeep Mandal

    (University of Birmingham)

  • Michael Theobald

    (University of Birmingham)

Abstract

We provide robust evidence of the impact on spot market liquidity and the pricing efficiency of FBM-FKLI index futures following the introduction of lower tick sizes for the stocks listed in the Bursa Malaysia. Our findings show a significant increase in unexpected trading volume and the speed of mean reversion of the futures mispricing. We find that the increase in the unexpected trading volume of the underlying stocks helps in reducing inter-market price discrepancies. The findings offer new evidence that lowering of tick sizes improves pricing efficiency in the Malaysian futures market.

Suggested Citation

  • Sunil S. Poshakwale & Jude W. Taunson & Anandadeep Mandal & Michael Theobald, 2019. "Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1135-1163, November.
  • Handle: RePEc:kap:rqfnac:v:53:y:2019:i:4:d:10.1007_s11156-018-0777-7
    DOI: 10.1007/s11156-018-0777-7
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    1. Shuxin Guo, 2021. "Do futures lead the index under stress? Evidence from the 2015 Chinese market turmoil and its aftermath," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 91-110, January.

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    More about this item

    Keywords

    Index futures; Speed of adjustment; Mean reversion; Market microstructure; Emerging markets;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E14 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Austrian; Evolutionary; Institutional

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