Exchange Traded Contracts for Difference: Design, Pricing and Effects
58 Pages Posted: 18 Jun 2009 Last revised: 24 Jul 2009
Date Written: June 11, 2009
Abstract
Contracts for Difference (CFDs) represent a significant financial innovation in the design of futures contract. Their use in over-the-counter markets has grown significantly and has created controversy in the UK, but to date there have been no published academic studies examining CFD markets. In 2007, the Australian Securities Exchange (ASX) introduced exchange-traded CFDs on individual stocks and other financial instruments. This paper analyzes the contract design and consequences for pricing relationships between CFDs and the underlying stocks. Using the unique database of ASX CFD trades and quotes, we test empirically whether the pricing relationship conforms to theoretical expectations, how spreads in the derivative market are related to those in the physical market, and draw out implications for successful design and trading arrangements for the introduction of new derivative contracts.
Keywords: Contracts for Difference, CFDs, futures, Bid-Ask Spreads, arbitrage
JEL Classification: G13, G14
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
A Simple Panel Unit Root Test in the Presence of Cross Section Dependence
-
A Panic Attack on Unit Roots and Cointegration
By Jushan Bai and Serena Ng
-
Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey
By Badi H. Baltagi and Chihwa Kao
-
Dynamic Panel Estimation and Homogeneity Testing Under Cross Section Dependence
By Peter C. B. Phillips and Donggyu Sul
-
Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure
-
Testing for a Unit Root in Panels with Dynamic Factors
By Hyungsik Roger Moon and Benoit Perron
-
Testing for a Unit Root in Panels with Dynamic Factors
By Hyungsik Roger Moon and Benoit Perron
-
General Diagnostic Tests for Cross Section Dependence in Panels