Futures Exchange Innovations: Reinforcement Versus Cannibalism

Office for Futures and Options Research (OFOR), Working Paper No. 99-03

33 Pages Posted: 24 Sep 1999

See all articles by Joost M. E. Pennings

Joost M. E. Pennings

Maastricht University; Wageningen UR; University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

Raymond M. Leuthold

University of Illinois @ Urbana-Champaign

Abstract

Futures exchanges are in constant search of futures contracts that will generate a profitable level of trading volume. In this context, it would be interesting to determine what effect the introduction of new futures contracts have on the trading volume of the contracts already listed. The introduction of new futures contracts may lead to a volume increase for those contracts already listed and hence, contribute to the success of a futures exchange. On the other hand, the introduction of new futures contracts could lead to a volume decrease for the contracts already listed, thereby undermining the success of the futures exchange accordingly. Using a multi-product hedging model in which the perspective has been shifted from portfolio to exchange management, we study these effects. Using data from two exchanges that are different regarding market liquidity (Amsterdam Exchanges versus Chicago Board of Trade) we show the usefulness of the proposed tool. Our findings have several important implications for a futures exchange's innovation policy.

JEL Classification: G13

Suggested Citation

Pennings, Joost M. E. and Leuthold, Raymond M., Futures Exchange Innovations: Reinforcement Versus Cannibalism. Office for Futures and Options Research (OFOR), Working Paper No. 99-03. Available at SSRN: https://ssrn.com/abstract=176768 or http://dx.doi.org/10.2139/ssrn.176768

Joost M. E. Pennings (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

Wageningen UR ( email )

Hollandseweg 1
Wageningen, 6706KN
Netherlands

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

University of Illinois at Urbana-Champaign - Department of Agricultural and Consumer Economics

1301 W. Gregory Drive
326 Mumford Hall MC-710
Urbana, IL 61801
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217-244-1284 (Phone)
217-333-5538 (Fax)

HOME PAGE: http://marketing-finance.nl/cv/cvpennings.pdf

Raymond M. Leuthold

University of Illinois @ Urbana-Champaign ( email )

1301 W. Gregory Drive
326 Mumford Hall
Urbana, IL 61801
United States
217-333-1810 (Phone)
217-333-5538 (Fax)

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