A note on execution costs for stock index futures: Information versus liquidity effects

Henk Berkman, Tim Brailsford, Alex Frino

Research output: Contribution to journalArticleResearchpeer-review

31 Citations (Scopus)

Abstract

This paper examines execution costs and the impact of trade size for stock index futures using price-volume transaction data from the London International Financial Futures and Options Exchange. Consistent with Subrahmanyam [Rev. Financ. Stud. 4 (1991) 17] we find that effective half spreads in the stock index futures market are small compared to stock markets, and that trades in stock index futures have only a small permanent price impact. This result is important as it helps to better understand the success of equity index products such as index futures and Exchange Traded Funds. We also find that there is no asymmetry in the post-trade price reaction between purchases and sales for stock index futures across various trade sizes. This result is consistent with the conjecture in Chan and Lakonishok [J. Financ. Econ. 33 (1993) 173] that the asymmetry surrounding block trades in stock markets is due to the high cost of short selling and the general reluctance of traders to short sell on stock markets.

Original languageEnglish
Pages (from-to)565-577
Number of pages13
JournalJournal of Banking and Finance
Volume29
Issue number3
DOIs
Publication statusPublished - Mar 2005
Externally publishedYes

Fingerprint

Liquidity effect
Stock index futures
Stock market
Execution costs
Trade size
Asymmetry
Price impact
Purchase
Block trades
Costs
Futures prices
Transaction data
Exchange traded funds
Price reaction
Traders
Short selling
Futures markets
Exchange option
Stock index
Equity

Cite this

Berkman, Henk ; Brailsford, Tim ; Frino, Alex. / A note on execution costs for stock index futures : Information versus liquidity effects. In: Journal of Banking and Finance. 2005 ; Vol. 29, No. 3. pp. 565-577.
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A note on execution costs for stock index futures : Information versus liquidity effects. / Berkman, Henk; Brailsford, Tim; Frino, Alex.

In: Journal of Banking and Finance, Vol. 29, No. 3, 03.2005, p. 565-577.

Research output: Contribution to journalArticleResearchpeer-review

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