Single Stock Futures and Their Impact on Market Quality: Be Careful What You Wish For

31 Pages Posted: 19 Oct 2020 Last revised: 21 Oct 2020

See all articles by Edward Curran

Edward Curran

Macquarie University - Faculty of Business and Economics

Vito Mollica

Macquarie Graduate School of Management; Capital Markets CRC Limited (CMCRC); Macquarie University, Macquarie Business School

Date Written: August 30, 2020

Abstract

The impact of derivatives is almost invariably measured by the liquidity outcomes on the underlying. We explore the relationship between efficiency, fairness and derivatives with respect to the underlying. We provide evidence that the presence of a derivative improves liquidity in the underlying but decreases the degree of fairness - proxied by manipulation likelihood. Our study highlights that a leveraged derivative entices manipulation in the underlying and that typical inhibitors to manipulation, namely high visible execution costs, are in fact desirable.

Keywords: market manipulation, single stock futures, spot market, bid-ask spread

JEL Classification: G13, G14

Suggested Citation

Curran, Edward and Mollica, Vito, Single Stock Futures and Their Impact on Market Quality: Be Careful What You Wish For (August 30, 2020). Available at SSRN: https://ssrn.com/abstract=3683346 or http://dx.doi.org/10.2139/ssrn.3683346

Edward Curran (Contact Author)

Macquarie University - Faculty of Business and Economics ( email )

Sydney, New South Wales 2109
Australia

Vito Mollica

Macquarie Graduate School of Management ( email )

Capital Markets CRC Limited (CMCRC) ( email )

Level 3, 55 Harrington Street
Sydney, 2000
Australia

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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