Migration of Trading and the Introduction of Single Stock Futures on the Underlying U.S. Stocks

34 Pages Posted: 25 Aug 2008 Last revised: 8 Sep 2009

See all articles by André Gygax

André Gygax

University of Melbourne - Department of Finance

Thomas Henker

Bond University

Wai-Man (Raymond) Liu

Australian National University (ANU) - School of Finance and Applied Statistics

Kok Wen Loong

affiliation not provided to SSRN

Date Written: August 25, 2008

Abstract

This study investigates where liquidity and informed trading takes place following the introduction of single stock futures (SSF) contracts on the OneChicago futures exchange. Specifically, we analyze the size and composition of proportional spreads for two sets of stocks, those that have single stock futures contracts and a matched control sample that does not have such contracts. We find that, after controlling for changes in spread determinants, the average proportional spreads, on average, decrease significantly after SSF are introduced. For NYSE stocks, while the average daily trading volume in the cash market is reduced by 389,000 shares, we find a corresponding increase in the average percentage of the adverse selection component in the spread of the cash asset. This pattern indicates a migration of liquidity trading to the SSF market as fund managers appear to adjust their portfolio positions in the secondary SSF market rather than in the primary stock market.

Keywords: Migration of trading, Liquidity Trading, Informed Trading

JEL Classification: G10, G14, G15

Suggested Citation

Gygax, André and Henker, Thomas and Liu, Wai-Man (Raymond) and Loong, Kok Wen, Migration of Trading and the Introduction of Single Stock Futures on the Underlying U.S. Stocks (August 25, 2008). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1253622 or http://dx.doi.org/10.2139/ssrn.1253622

André Gygax (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Business and Economics
Parkville, Victoria 3010
Australia

Thomas Henker

Bond University ( email )

Gold Coast, QLD 4229
Australia
+61 7 5595-1561 (Phone)

Wai-Man (Raymond) Liu

Australian National University (ANU) - School of Finance and Applied Statistics ( email )

Building 26c College of Business & Economics
Australian National University
Acton, Canberra ACT, Australian Capital Territory 2601
Australia
+61 2 612 53471 (Phone)
+61 2 612 50087 (Fax)

HOME PAGE: http://https://researchers.anu.edu.au/researchers/liu-wm

Kok Wen Loong

affiliation not provided to SSRN

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