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
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: Suggested Citation
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