Slippage in Futures Markets: Evidence from the Sydney Futures Exchange

Posted: 2 Jan 2004

See all articles by Alex Frino

Alex Frino

The University of Sydney - Discipline of Finance; Financial Research Network (FIRN)

Teddy Oetomo

Schroder Investment Management Indonesia

Abstract

This paper examines the market-impact cost of trades executed in futures markets, which is commonly referred to as "slippage". Using a unique dataset provided by the Sydney Futures Exchange, this paper documents that slippage costs incurred in executing packages of trades in stock index and interest rate futures markets are significantly smaller than market-impact costs documented previously for equity markets.

Furthermore, in contrast to research based on equity markets, there is little evidence that trade packages executed in futures markets convey information, or that purchases and sales behave differently. In fact, the evidence presented in this paper implies that slippage in futures markets is entirely a liquidity cost, and symmetrical for purchases and sales. This is consistent with previous work which conjectures that there is an absence of private information in stock index and interest rate futures markets. Finally, analogously to previous research, there is some evidence that trade size and the identity of traders are determinants of slippage, however these variables explain less than 10 percent of the total variation in slippage.

Keywords: Slippage, Trading Costs, Sydney Futures Exchange

JEL Classification: D40, G10, G14

Suggested Citation

Frino, Alex and Oetomo, Teddy, Slippage in Futures Markets: Evidence from the Sydney Futures Exchange. Available at SSRN: https://ssrn.com/abstract=482643 or http://dx.doi.org/10.2139/ssrn.482643

Alex Frino (Contact Author)

The University of Sydney - Discipline of Finance ( email )

Futures Research Centre
P.O. Box H58
Sydney NSW
Australia
+61 2 9299 1809 (Phone)
+61 2 9299 1830 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Teddy Oetomo

Schroder Investment Management Indonesia ( email )

31 Gresham Street
London, EC2V 7QA
United Kingdom

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