Reversing the Lead, or a Series of Unfortunate Events? NYMEX, ICI and Amaranth

35 Pages Posted: 13 Feb 2009

See all articles by Paul Kofman

Paul Kofman

The University of Melbourne

David Michayluk

University of Technology Sydney (UTS) - School of Finance and Economics; Financial Research Network (FIRN); Centre for International Finance and Regulation (CIFR)

James T. Moser

American University - Kogod School of Business

Date Written: February 13, 2009

Abstract

In comparing trading platforms, most studies suggest that electronic systems lead price discovery, except perhaps in excessively volatile markets. A series of unusual events in 2006, sparking extreme volatility in natural gas futures trading, provide an ideal setting to revisit the resilience of trading system price leadership in the face of excessive volatility. We estimate time-varying Hasbrouck-style information shares to investigate the intertemporal and cross-sectional dynamics in price discovery. The results strongly suggest that the information share is time-dependent and contract-dependent. We find that the floor trading information share increases significantly with realized volatility.

Keywords: price discovery, trading platforms, natural gas derivatives

JEL Classification: G13

Suggested Citation

Kofman, Paul and Michayluk, David and Moser, James T., Reversing the Lead, or a Series of Unfortunate Events? NYMEX, ICI and Amaranth (February 13, 2009). Available at SSRN: https://ssrn.com/abstract=1342186 or http://dx.doi.org/10.2139/ssrn.1342186

Paul Kofman (Contact Author)

The University of Melbourne ( email )

Faculty of Economics and Commerce
Department of Finance
Parkville, Victoria 3010
Australia
61 3 8344 3794 (Phone)

David Michayluk

University of Technology Sydney (UTS) - School of Finance and Economics ( email )

Finance Discipline Group
UTS Business
Sydney, NSW 2007
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

James T. Moser

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Washington, DC 20816-8044
United States

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