Decimalization, trading costs, and information transmission between ETFs and index futures

Chou, Robin K.; Chung, Huimin

doi:10.1002/fut.20189

Cited by 64 publications

(52 citation statements)

References 45 publications

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“…Specifically, researchers find that stock index futures markets incorporate marketwide information more efficiently (Bohl et al, 2011) and more quickly (Brooks et al, 2001;Chou and Chung, 2006;Koutmos and Tucker, 1996;Pizzi et al, 1998;Stoll and Whaley, 1990;Tse, 1999) than spot markets. The issue of information transmission between spot and futures markets is of interest to financial analysts and policy makers.…”

Section: Literature Reviewmentioning

confidence: 99%

Dynamic spillover effects in futures markets: UK and US evidence

Antonakakis

Floros

Kizys

2016

International Review of Financial Analysis

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Previous studies on spillover effects in future markets have so far confined themselves to static analyses. In this study, we use a newly introduced spillover index to examine dynamic spillovers between spot and futures market volatility, volume of futures trading and open interest in the UK and the US. Based on a dataset over the period February 25, 2008 to March 14, 2013, that encompasses both the global financial crisis and the Eurozone debt crisis, we find that spot and futures volatilities in the UK (US) are net receivers (net transmitters) of shocks to volume of futures trading and open interest. The analysis also sheds light on the dynamic interdependence of spot and futures market volatilities between the US and the UK. Specifically, the spot and futures volatility spillovers between the UK and US markets are of bidirectional nature, however, they are affected by major economic events such as the global financial and Eurozone debt crisis. Several robustness checks endorse our main findings. Overall, these results have important implications for various market participants and financial sector regulators.

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Section: Literature Reviewmentioning

confidence: 99%

Dynamic spillover effects in futures markets: UK and US evidence

Antonakakis

Floros

Kizys

2016

International Review of Financial Analysis

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“…The empirical literature agrees that a decrease in the minimum tick size enhances the price discovery process (Chen and Gau 2009;Beaulieu et al 2003 and. In particular, Beaulieu et al (2003) and Chou and Chung (2006) also document an increased participation of funds in the price discovery process following a decrease in the minimum tick size. Booth and Yüksel (2006) confirm the above findings for the Istanbul stock exchange.…”

Section: Effect Of Tick Size Changes On the Price Discovery Processmentioning

confidence: 64%

“…The majority of published papers use NYSE and NASDAQ TAQ data (see Chou and Chung 2006;Jones and Lipson 2001;Johnson et al 2014;O'Hara et al 2014), and some more recent studies use the national best bid and offer (NBBO) US data. There are also variations in the sample time period.…”

Section: An Outline Of the Surveyed Papersmentioning

confidence: 99%

One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations

Verousis

Perotti

Sermpinis

2017

Rev Quant Finan Acc

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This paper offers a systematic review of the empirical literature on the implications of tick size changes for exchanges. Our focus is twofold: first, we are concerned with the market quality implications of a change in the minimum tick size. Second, we are interested in the implications of changes in the minimum tick size on market structure. We show that there is a large body of empirical literature that documents a decrease in transaction costs following a decrease in the minimum tick size. However, even though market liquidity increases, the incentive to provide market making activities decreases. We document a strong link between the minimum tick size regulations and the recent increase in high frequency trading activity. A smaller tick enhances the price discovery process. However, the question of how multiple tick size regimes affect market liquidity in a fragmented market remains to be answered. Finally, we identify topics for future research; we discuss the empirical literature on the minimum trade unit and the recent calls for a minimum resting time for quotes.

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“…Kurov and Lasser (2002) examine the impact of the Nasdaq100 Index Tracking Stock (ETF) on the underlying futures. The effect of decimalization of ETFs is studied by Chou and Chung (2006). Their results suggest that ETFs start to lead index futures in the price discovery process indicating a close relationship between passively managed index products and index futures.…”

Section: Literature Reviewmentioning

confidence: 94%

Intraday pricing of ETFs and certificates replicating the German DAX index

2010

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The market for the leading German equity index DAX comprises electronically traded futures contracts, fully replicated and swap-based exchangetraded funds (ETFs), and certificates. This paper reveals that DAX futures contracts contribute an economically and statistically significant proportion to contemporaneous price quotes of ETFs and certificates. This finding is surprising because the prospectus of ETFs and certificates claim to follow the stock index solely, but not the index futures contract. Exploring further the short-run dynamics, our results suggest that fully replicated ETFs cope better with adjusting their prices to the DAX index than swap-based ETFs and certificates.

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Decimalization, trading costs, and information transmission between ETFs and index futures

Cited by 64 publications

References 45 publications

Dynamic spillover effects in futures markets: UK and US evidence

Dynamic spillover effects in futures markets: UK and US evidence

One size fits all? High frequency trading, tick size changes and the implications for exchanges: market quality and market structure considerations

Intraday pricing of ETFs and certificates replicating the German DAX index

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