Information Revelation in the Futures Market: Evidence from the Single Stock Futures Market
39 Pages Posted: 16 Mar 2006
Date Written: August 26, 2006
This paper analyzes 31 months of data on 137 single-stock futures (SSFs). The results indicate that SSFs contribute approximately 24 percent of the price discovery for underlying stocks. Information revelation in the SSFs market increases with the ratio (futures to stock market) of volumes, decreases with the ratio of spreads, and decreases with the volatility in the stock market. Moreover, the quality of the market for the underlying stocks improves substantially following the introduction of the SSFs market, with the largest improvement occurring on days with SSFs trading. Evidence also suggests that there exists both market- and security-level learning in the SSFs market which is associated with greater efficiency over time.
Keywords: futures market, price discovery, information share
JEL Classification: G12, G13, G14
Suggested Citation: Suggested Citation