Determinants of Trading Activity on the Single-Stock Futures Market: Evidence from the Eurex Exchange

Posted: 20 May 2019

See all articles by Jedrzej Pawel Bialkowski

Jedrzej Pawel Bialkowski

University of Canterbury - Department of Economics and Finance

Jacek Jakubowski

University of Warsaw, Instiute of Mathematics

Date Written: January 16, 2010

Abstract

A number of exchanges around the world have attempted to introduce single-stock futures, but only a few have succeeded. We argue that this situation can be attributed to the use of inadequate selection criteria for the underlyings. Therefore, our paper investigates the determinants of trading activity on the Eurex derivative exchange and looks beyond systematic reasons extensively examined in prior research. It is found that trading activity is higher for single-stock futures on stock characterized by low institutional ownership and high volume and volatility on the spot market. The mispricing between the spot and futures markets also attracts investors to the single-stock futures market. Moreover, factors such as the size of contract, tick size, and age of contract on a particular stock significantly contribute to the increase of open interest and traded volume. Furthermore, evidence is found that single-stock futures become more efficiently priced around an ex-dividend date for the underlying stock. This is due to dividend stripping trading which allows a reduction in the tax burden. Our findings have important implications for investors who have an interest in that segment of the derivatives market. These implications should also be taken into consideration by market regulators and tax authorities.

Keywords: Single-stock futures; Futures market efficiency; Listing selection, Short sale

JEL Classification: G1; G11; G14; G21

Suggested Citation

Bialkowski, Jedrzej Pawel and Jakubowski, Jacek, Determinants of Trading Activity on the Single-Stock Futures Market: Evidence from the Eurex Exchange (January 16, 2010). Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1537503 or http://dx.doi.org/10.2139/ssrn.1537503

Jedrzej Pawel Bialkowski (Contact Author)

University of Canterbury - Department of Economics and Finance ( email )

Private Bag 4800
Christchurch
New Zealand

Jacek Jakubowski

University of Warsaw, Instiute of Mathematics ( email )

ul. Banacha 2
Warsaw, 02-097
Poland

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