Liquidity Effects of Single Stock Futures
American Journal of Scientific Research, ISSN 2301-2005, Issue 80 November, 2012, pp. 79-91
13 Pages Posted: 9 Dec 2012
Date Written: 2012
This study aims to analyse the impact of Single Stock Futures (SSF) on liquidity of the stocks for which SSF was introduced in Karachi Stock Exchange (KSE). A sample of 21 companies is selected from different industrial sectors. Data related to daily stock trading for these companies are taken for two-year pre and two-year post SSFs introduction period. Four variables namely Volume, Trading value, Number of Trades, and value per trade are used as proxies for liquidity of the sample stocks. The Hotelling's T squared test is used for the hypothesis testing, while data is analyzed using the paired difference test for two population means. Results of the Hotelling’s T squared test indicate that the introduction of stock futures trading has significantly affected liquidity of the stocks dealing in Single Stock Futures. Results of the paired difference test indicate that the trading volume, the number of trades, and the trading value for most the underlying stocks is positively and significantly affected, while impact on value per trade for most of the sample stocks is insignificant. Thus, it is concluded that liquidity of the stocks has increased with the introduction of the SSF in the Pakistan’s market.
Keywords: Single Stock Futures, Liquidity, Karachi Stock Exchange, Hotelling’s T squared
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