The impact of electronic trading on bid‐ask spreads: Evidence from futures markets in Hong Kong, London, and Sydney

Aitken, Michael; Frino, Alex; Hill, Amelia; Jarnecic, Elvis

doi:10.1002/fut.20106

Cited by 54 publications

(40 citation statements)

References 42 publications

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“…Our findings appear to be consistent with the proposition that while the electronic trading can facilitate higher levels of liquidity and lower transaction costs relative to floor traded markets, the lack of specialists (floor brokers) in anonymous markets increases adverse selection in trading, which hampers the performance of electronic trading systems during periods of information arrival (Aitken et al, 2004;Anand and Subrahmanyam, 2008). Further, traditional market microstructure literature (Kyle, 1985) largely views market intermediaries as uninformed traders who cover their losses to informed traders by charging the adverse selection component of the bid-ask spread.…”

Section: Results In Panel B Ofsupporting

confidence: 89%

“…The general theoretical and empirical consensus is that despite electronic trading enhances the liquidity of stock markets, there is not one type of market structure that is dominant in all circumstances and that fully automated markets could benefit from human intermediation. Finally, Aitken et al, (2004) analyze three major futures exchanges (the London International Financial Futures and Options Exchange, the Sydney Futures Exchange, and the Hong Kong Futures Exchange) that transferred trading in stock index futures from open outcry to electronic markets. The evidence from these natural floor closure experiments is that while electronic trading facilitates higher levels of liquidity and results in lower transaction costs relative to floor traded futures markets, bid-ask spreads are more sensitive to price volatility in electronically traded markets, which suggests that the performance of electronic trading systems deteriorates during periods of information arrival.…”

Section: Introductionmentioning

confidence: 99%

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The Impact of Trading Floor Closure on Market Efficiency: Evidence from the Toronto Stock Exchange

Hrazdil

Chung

2013

SSRN Journal

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Abstract:We are the first to evaluate the impact of the trading floor closure on the corresponding efficiency of the stock price formation process on the Toronto Stock Exchange (TSX). Utilizing short-horizon return predictability as an inverse indicator of market efficiency, we demonstrate that while the switch to all electronic trading resulted in higher trading activity and lower trading costs, the information asymmetry among investors increased. The TSX trading floor closure resulted in a significant decrease in informational efficiency and it took over twenty minutes longer after floor closure for information to be incorporated into prices compared to the pre-closure period. In multivariate setting, we provide further evidence that changes in information asymmetry and increased losses to liquidity demanders due to adverse selection account for the largest variations in the deterioration of the aggregate level of informational efficiency. Our results suggest that the human element plays an important role in price discovery and electronic trading should complement, rather than replace, the exchange trading floor. JEL Codes: G10; G14

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Section: Results In Panel B Ofsupporting

confidence: 89%

Section: Introductionmentioning

confidence: 99%

The Impact of Trading Floor Closure on Market Efficiency: Evidence from the Toronto Stock Exchange

Hrazdil

Chung

2013

SSRN Journal

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“…10 Chordia and Subrahmanyam (1995); Easley, Keifer, and O'Hara (1996); Lin, Sanger, and Booth (1995); Madhavan and Cheng (1997);and Booth, Lin, Martikainen, and Tse (2002). 11 Aitken, Frino, Hill, and Jarnecic (2004) and Frino, Harris, McInish, and Tomas (2004).…”

mentioning

confidence: 98%

Slippage in futures markets: Evidence from the Sydney Futures Exchange

Frino

Oetomo

2005

Journal of Futures Markets

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This article examines the market-impact cost of trades executed in futures markets, which is commonly referred to as slippage. With the use of a unique data set provided by the Sydney Futures Exchange, this article documents that slippage costs incurred in executing packages of trades in stock-index and interest-rate futures markets are significantly smaller than market-impact costs documented previously for equity markets. Furthermore, in contrast to research based on equity markets, there is little evidence that trade packages executed in futures markets convey information, or that purchases and sales behave differently. In fact, the (2002) define slippage as the transactional risk that arises from the inability of a trader to accurately foretell the price at which an order to purchase or sell will be executed, especially for a large or complex trades. 2 Slippage is comparable to the market-impact costs in equity markets. In this article, the term slippage is used to define the variation between traded and unperturbed prices in futures markets, whereas the term market-impact cost is used to define such variation in equity markets. 3See Kraus and Stoll (1972);Holtahusen et al. (1990);Gemmill (1996);and Keim and Madhavan (1996). evidence presented in this article implies that slippage in futures markets is entirely a liquidity cost, and symmetrical for purchases and sales. This is consistent with previous work, which conjectures that there is an absence of private information in stock-index and interest-rate futures markets. Finally, analogously to previous research, there is some evidence that trade size and the identity of traders are determinants of slippage; however, these variables explain less than 10% of the total variation in slippage.

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“…The data utilised in this study are from 2nd January 2001 Aitken, Frino, Hill, and Jarnecic (2004). A few features related to change of the trading system are worth noting.…”

Section: Datamentioning

confidence: 99%

Evidence on the arbitrage efficiency of SPI index futures and options markets

Alfay²

2007

Asia-Pacific Finan Markets

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This paper is concerned with arbitrage opportunities in the futures and futures option contracts traded on the Sydney Futures Exchange (SFE) within a put-call-futures-parity (PCFP) framework. Tick-by-tick transaction price data are employed so that the futures contracts, the call futures options and the put futures options can be matched within a one-minute interval. This paper also takes into account the realistic transaction costs that an arbitrager has to incur, including the implicit bid-ask spread. A thorough ex post analysis is first carried out. The results reveal a significant number of violations of the PCFP in the sample. Ex ante tests are then conducted whereby ex post profitable arbitrage strategies, signified by the matched trios of futures, put and call contracts, are executed with lags up to 3 min. The ex ante results are similar to the ex post results. However, further analysis reveals that the exploitability of the identified arbitrage opportunities is very limited due to the small trading volumes of the futures and options contracts. Thus, we conclude that there is no strong evidence against the arbitrage efficiency between the SPI index futures and options markets in Australia. Copyright Springer Science+Business Media, LLC 2006Put-call-futures parity, Market efficiency, SPI index, Futures, Options, G13, G14,

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The impact of electronic trading on bid‐ask spreads: Evidence from futures markets in Hong Kong, London, and Sydney

Cited by 54 publications

References 42 publications

The Impact of Trading Floor Closure on Market Efficiency: Evidence from the Toronto Stock Exchange

The Impact of Trading Floor Closure on Market Efficiency: Evidence from the Toronto Stock Exchange

Slippage in futures markets: Evidence from the Sydney Futures Exchange

Evidence on the arbitrage efficiency of SPI index futures and options markets

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