The Relative Importance of Information, Inventory and Price Clustering for Stir Futures Pre- and Post-Emu

University of Southampton Working Paper No. CRR-05-07

33 Pages Posted: 2 Dec 2005

See all articles by Frank McGroarty

Frank McGroarty

University of Southampton - Southampton Business School

Stephen Thomas

University of Southampton - School of Management

Owain Ap Gwilym

Bangor Business School

Date Written: October 28, 2005

Abstract

This paper applies an established bid-ask spread decomposition model to short-term interest rates (STIR) futures to assess the impact of both the migration from floor to electronic trading and European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides much improved performance. Price clustering is introduced as a new explanatory factor within this framework and is shown to be vitally important in understanding the bid-ask spread and price determination.

Keywords: High frequency data, Futures, Market infranstructure, Asymmetric information, Order-driven

JEL Classification: F30, G13, G15, D4

Suggested Citation

McGroarty, Frank and Thomas, Stephen and ap Gwilym, Owain, The Relative Importance of Information, Inventory and Price Clustering for Stir Futures Pre- and Post-Emu (October 28, 2005). University of Southampton Working Paper No. CRR-05-07 . Available at SSRN: https://ssrn.com/abstract=860284 or http://dx.doi.org/10.2139/ssrn.860284

Frank McGroarty (Contact Author)

University of Southampton - Southampton Business School ( email )

Southampton, SO17 1BJ
United Kingdom

Stephen Thomas

University of Southampton - School of Management ( email )

Highfield
Southampton S017 1BJ, Hampshire SO17 1BJ
United Kingdom

Owain Ap Gwilym

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

HOME PAGE: http://www.bangor.ac.uk/business/staff/owain_ap_gwilym.php.en

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