Abstract

https://ssrn.com/abstract=1916072
 
 

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When Do Stock Futures Dominate Price Discovery?


Nidhi Aggarwal


Indira Gandhi Institute of Development Research

Susan Thomas


Indira Gandhi Institute of Development Research (IGIDR)

August 24, 2011

24th Australasian Finance and Banking Conference 2011 Paper

Abstract:     
Contrary to the weak role of single stock derivatives found in the price discovery literature, this paper finds that single stock futures (SSF) traded on a liquid exchange have a high average information share of 49 percent, which increases by six percentage points upon information arrival. A partial equilibrium analysis shows that the choice of trading venue depends on the tradeoff between the benefits of leverage versus differences in liquidity of the two markets. Predictions about cross-sectional variations in the price discovery are validated by the empirical analysis, but only the liquidity difference influences this variation during information arrival.

Number of Pages in PDF File: 37

Keywords: Price discovery, Single stock futures, Liquidity, Leverage, Information arrival

JEL Classification: G12, G14


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Date posted: August 24, 2011 ; Last revised: March 22, 2013

Suggested Citation

Aggarwal, Nidhi and Thomas, Susan, When Do Stock Futures Dominate Price Discovery? (August 24, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1916072 or http://dx.doi.org/10.2139/ssrn.1916072

Contact Information

Nidhi Aggarwal (Contact Author)
Indira Gandhi Institute of Development Research ( email )
Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Mumbai, Maharashtra 400065
India
Susan Thomas
Indira Gandhi Institute of Development Research (IGIDR) ( email )
Gen A.K. Vaidya Marg Santoshnagar
Goregaon (East)
Bombay 400065, Maharashtra
India
22-840-0919, ext 550 (Phone)
22-840-2752 (Fax)
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