Determinants of Trading Activity on theSingle-Stock Futures Market: <i>Evidence from the</i><i>Eurex Exchange</i>

Białkowski, Jędrzej; Jakubowski, Jacek

doi:10.3905/jod.2012.19.3.029

Cited by 12 publications

(4 citation statements)

References 43 publications

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“…In the literature, two main aspects have been studied when analyzing the determinants of successful contracts -definition of success and factors contributing to contract success. The prior work reviewed encompasses studies offering explanations for why a few traded contracts achieve the liquidity, requisite for success and some experience low liquidity and failure in general and some studies specifically in the context of agricultural commodities (Bialkowski and Jakubowski, 2012;Till, 2014;Webb, 2015;Garcia et al, 2015). It helps us to identify broad characteristics essential to the success of the contract and specifically examine them in the context of agricultural commodities in India.…”

Section: Literature Reviewmentioning

confidence: 99%

Determinants of Successful Agri - Futures Contracts in India

Agrawal

Sehgal²,

Agrawal³

2019

AJFA

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The study empirically examines the factors which impact the success of the Agri commodity futures contracts. Daily data from July 2012 to July 2017 is used for 22 commodities traded on the three national commodity derivatives exchanges and analyzed in a panel data analysis framework. The results of the study suggest that higher volatility in the spot and futures market, competition in terms of multiple exchange listing, the age of the futures contract, lot size and tick size increase the success potential of the agri futures contract. The international listing, the imposition of Commodity transaction tax, a higher number of levels in the value chain and greater geographical coverage in the spot market reduces the liquidity for the contract. Thus, the study identifies important market characteristics and elements of contract design that have implications for the success of agri commodities futures contract in India.

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Section: Literature Reviewmentioning

confidence: 99%

Determinants of Successful Agri - Futures Contracts in India

Agrawal

Sehgal²,

Agrawal³

2019

AJFA

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“…Unlike our earlier analysis, we can control for the other factors that might affect traded volume in this model. To control for the high correlation in traded volume between the spot market and the futures market, we use spot market traded volume as a control variable (Białkowski & Jakubowski, 2012). For our panel data estimation, we consider our period of analysis from June 13, 2015 (1 month before SEBI's announcement of minimum contract size revision) to December 31, 2015.…”

Section: Traded Volumementioning

confidence: 99%

“…σ Spot _ is the spot market volatility using Andersen et al (2001)'s definition. To control for the high correlation in traded volume between the spot market and the futures market, we use spot market traded volume as a control variable (Białkowski & Jakubowski, 2012).…”

Section: Traded Volumementioning

confidence: 99%

Does trade size restriction affect trading behavior? Evidence from Indian single stock futures market

Banerjee

2019

Journal of Futures Markets

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Algorithmic traders use their advantage of speed to execute a large number of small-sized trades in a very short time. In the presence of a minimum trading unit (MTU) restriction, they are forced to trade at the smallest possible sizes, often restricted by the MTU. Using a novel data set of single stock futures market obtained from the National Stock Exchange of India, we show that the MTU restriction acts as a binding constraint for traders while optimizing trade sizes. Contrary to expectation, we find weak evidence that liquidity is positively impacted by the contract size revision.algorithmic trading, contract size, liquidity, minimum trading unit, trading volume Exchange Board of India (SEBI) in 2015, to observe how market participants react to such exogenous shocks. With the introduction of dematerialized trading in the equity market (1999), most of the trading in the Indian equity market at present is carried out in the paperless format with no concept of trading lots or MTU. Traders can buy or sell single units of equity shares. In the derivatives segment, however, the concept of trading in lots is still in vogue where the lot sizes are specific to the underlying security. Unlike most other markets in the world where the MTU is fixed (usually 100 units), in the Indian market, the minimum size of the derivatives contracts is specified by the exchange based on the price level of the underlying stock. During 2015, the market regulator revised the minimum size of a derivative contract upward from INR 0.2 million to 0.5 million. This natural laboratory setup also provides us a unique opportunity to observe the impact of market-wide upward revision of MTU on market liquidity and trading volume.With the introduction of algorithmic trading in various exchanges, presently a significant proportion of trades are initiated automatically from computer terminals without any real-time manual intervention. This paradigm shift in trading mechanism has led traders to adopt appropriate trading strategies to minimize impact costs. Over the last decade and a half, the average trade size in exchanges over the globe has significantly reduced 2 (Angel, Harris, & Spatt, 2011;O'Hara, Yao, & Ye, 2014), owing much of it to the increase in algorithmic trading activity. Aitken, Cumming, and Zhan (2017) show that the introduction of algorithmic trading and high-frequency trading (HFT), proxied by colocation services, significantly impacts trade sizes. Traders often face a challenge of choosing optimum trade sizes to reduce overall impact cost and transaction cost (Bertsimas & Lo, 1998), especially when confronted with the problem of buying or selling a predefined quantity. Algorithmic traders use their advantage of speed to split a larger order into smaller lots so that the price impact is minimal. They are more likely to carry out a large number of small trades throughout the day rather than a few bulk trades. Algorithmic traders are also mostly intraday traders who rarely carry over their positions to the next trading day. 3 In this c...

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“…There is also a study in Taiwan by Songyoo (2012); it shows a bilateral interaction in the long run, and the futures market leads the spot market in the short run. Moreover, some studies involve the determinant of the SSF trading volume; for example, Bialkowski and Jakubowski (2012) have shown that institutional holdings, volatility, and trading volume of the underlying stocks in the spot market are the significant factor to the trading activities on SSF using the data from the Eurex Exchange.…”

Section: Single Stock Futuresmentioning

confidence: 99%

The lead-lag relationship of block trade single stock futures and the underlying stocks: evidence from Thailand

Wongvisavakorn

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According to the efficient market hypothesis, there should not be any lead-lag relationship of the spot and futures price of the financial assets; however, many empirical studies have suggested otherwise. This study uses the Vector Error Correction Model (VECM) and Granger causality test with the daily trading data of Thailand’s block trade single stock futures and its underlying securities of 42 companies from 2016 to 2020. It reveals both unidirectional and bidirectional relationships of spot and futures markets with a less dominant role of the futures market in the price discovery function. None of the sample companies have both long-run and short-run causality from futures to spot market, and only 5% of the 42 companies show the leading role of the futures market in the long-run with bilateral interaction in the short-run. The results contradict our hypothesis that block trade single stock futures lead the counterpart underlying stocks in the short-run and long-run despite the higher leverage, lower transaction cost, and no short sale restriction of the futures market. The lead-lag relationship between block trade single stock futures and the underlying stocks in Thailand can provide insightful information for regulators and policymakers in promoting efficiency and improving the information asymmetry that would help create a better trading environment for investors.

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Determinants of Trading Activity on theSingle-Stock Futures Market: Evidence from theEurex Exchange

Cited by 12 publications

References 43 publications

Determinants of Successful Agri - Futures Contracts in India

Determinants of Successful Agri - Futures Contracts in India

Does trade size restriction affect trading behavior? Evidence from Indian single stock futures market

The lead-lag relationship of block trade single stock futures and the underlying stocks: evidence from Thailand

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