A Brighter Future with Lower Transactions Costs?

34 Pages Posted: 21 Feb 2008 Last revised: 6 Oct 2008

See all articles by Lars L. Norden

Lars L. Norden

Stockholm University - Stockholm Business School

Date Written: October 5, 2008

Abstract

Recently, the OMX Nordic Exchange reduced the exchange fee for trading the OMXS 30 index futures with more than 22%. The reduction in exchange fees provides this study with a unique opportunity to investigate the effects of a change in fixed transaction costs on futures market liquidity, trading activity, volatility, futures pricing efficiency, and the futures exchange's revenues. The results show a ceteris paribus increase in futures trading volume with 19%, a 27% decrease in futures bid-ask spread, and a 27% increase in volatility, as a result of the futures exchange fee reduction, whereas the pricing efficiency of the futures contract and the exchange's revenues are unaffected by the change in transaction costs. The exchange fee reduction has improved futures market liquidity at the cost of higher volatility. Moreover, the attractiveness and competitiveness of the futures exchange has increased relative alternative trading venues, without a loss of revenues in the process.

Keywords: Futures, Transactions costs, Liquidity, Pricing efficiency

JEL Classification: G13

Suggested Citation

Nordén, Lars L., A Brighter Future with Lower Transactions Costs? (October 5, 2008). Available at SSRN: https://ssrn.com/abstract=1096249 or http://dx.doi.org/10.2139/ssrn.1096249

Lars L. Nordén (Contact Author)

Stockholm University - Stockholm Business School ( email )

Sweden

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
171
Abstract Views
1,086
rank
187,055
PlumX Metrics