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Introducing contemporaneous open-outcry and e-trading at the Chicago Board of Trade

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  • Ulibarri, Carlos A.

Abstract

This study uses a vector error correction (VEC) model to examine price-volume relationships between open outcry and e-trading at the Chicago Board of Trade. We test whether equilibrium price corrections on one system are independent of the other, and whether this price behavior is more sensitive to changes in screen-based volume as opposed to open outcry volume. Error correction terms capture an asymmetric price adjustment process led by open outcry trading. Open outcry volume (market depth) also results in price discovery by dampening price volatility on both markets. These aspects of market microstructure are relevant in identifying how newly introduced e-trading systems operate in relation to established open outcry systems,and how e-trading systems may affect the economic performance of futures exchanges generally.

Suggested Citation

  • Ulibarri, Carlos A., 2004. "Introducing contemporaneous open-outcry and e-trading at the Chicago Board of Trade," MPRA Paper 14821, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:14821
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    References listed on IDEAS

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    1. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    2. Ulibarri, Carlos A., 1998. "Is after-hours trading informative?," MPRA Paper 14818, University Library of Munich, Germany.
    3. Francis Breedon & Allison Holland, 1998. "Electronic versus open outcry markets: The case of the Bund futures contract," Bank of England working papers 76, Bank of England.
    4. Asani Sarkar & Michelle Tozzi, 1998. "Electronic trading on futures exchanges," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 4(Jan).
    5. Mr. Ian Domowitz, 1992. "Automating the Price Discovery Process: Some International Comparisons and Regulatory Implications," IMF Working Papers 1992/080, International Monetary Fund.
    6. Craig Pirrong, 1996. "Market liquidity and depth on computerized and open outcry trading systems: A comparison of DTB and LIFFE bund contracts," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(5), pages 519-543, August.
    7. Ulibarri, Carlos A. & Schatzberg, John, 2003. "Liquidity costs: Screen-based trading versus open outcry," Review of Financial Economics, Elsevier, vol. 12(4), pages 381-396.
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    More about this item

    Keywords

    market liquidity; e-trading; vector error correction model;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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