Index futures arbitrage before and after the introduction of sixteenths on the NYSE

Thomas Henker, Martin Martens

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

Abstract

We find that market efficiency increased and the arbitrage link between index futures and the stock market strengthened after June 24, 1997, when the New York Stock Exchange reduced the minimum change for stock prices and quotes from an eighth to a sixteenth of a dollar. There has been a substantial increase in the number of arbitrage trades reported to the Securities and Exchange Commission (SEC) since the reduction in the minimum price increment. The average number of stocks traded and the average dollar amount underlying each arbitrage trade increases and decreases, respectively. The average index futures mispricing error (MPE) that triggers arbitrage is lower and reverts to zero more quickly. © 2004 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)353-373
Number of pages21
JournalJournal of Empirical Finance
Volume12
Issue number3
DOIs
Publication statusPublished - Jun 2005
Externally publishedYes

Fingerprint

Arbitrage
New York Stock Exchange
Market efficiency
Stock prices
Stock market
Securities and Exchange Commission
Trigger
Mispricing

Cite this

@article{9d2fe30e685e4c2e8beb5ede05a4d70f,
title = "Index futures arbitrage before and after the introduction of sixteenths on the NYSE",
abstract = "We find that market efficiency increased and the arbitrage link between index futures and the stock market strengthened after June 24, 1997, when the New York Stock Exchange reduced the minimum change for stock prices and quotes from an eighth to a sixteenth of a dollar. There has been a substantial increase in the number of arbitrage trades reported to the Securities and Exchange Commission (SEC) since the reduction in the minimum price increment. The average number of stocks traded and the average dollar amount underlying each arbitrage trade increases and decreases, respectively. The average index futures mispricing error (MPE) that triggers arbitrage is lower and reverts to zero more quickly. {\circledC} 2004 Elsevier B.V. All rights reserved.",
author = "Thomas Henker and Martin Martens",
year = "2005",
month = "6",
doi = "10.1016/j.jempfin.2004.04.006",
language = "English",
volume = "12",
pages = "353--373",
journal = "Journal of Empirical Finance",
issn = "0927-5398",
publisher = "Elsevier",
number = "3",

}

Index futures arbitrage before and after the introduction of sixteenths on the NYSE. / Henker, Thomas; Martens, Martin.

In: Journal of Empirical Finance, Vol. 12, No. 3, 06.2005, p. 353-373.

Research output: Contribution to journalArticleResearchpeer-review

TY - JOUR

T1 - Index futures arbitrage before and after the introduction of sixteenths on the NYSE

AU - Henker, Thomas

AU - Martens, Martin

PY - 2005/6

Y1 - 2005/6

N2 - We find that market efficiency increased and the arbitrage link between index futures and the stock market strengthened after June 24, 1997, when the New York Stock Exchange reduced the minimum change for stock prices and quotes from an eighth to a sixteenth of a dollar. There has been a substantial increase in the number of arbitrage trades reported to the Securities and Exchange Commission (SEC) since the reduction in the minimum price increment. The average number of stocks traded and the average dollar amount underlying each arbitrage trade increases and decreases, respectively. The average index futures mispricing error (MPE) that triggers arbitrage is lower and reverts to zero more quickly. © 2004 Elsevier B.V. All rights reserved.

AB - We find that market efficiency increased and the arbitrage link between index futures and the stock market strengthened after June 24, 1997, when the New York Stock Exchange reduced the minimum change for stock prices and quotes from an eighth to a sixteenth of a dollar. There has been a substantial increase in the number of arbitrage trades reported to the Securities and Exchange Commission (SEC) since the reduction in the minimum price increment. The average number of stocks traded and the average dollar amount underlying each arbitrage trade increases and decreases, respectively. The average index futures mispricing error (MPE) that triggers arbitrage is lower and reverts to zero more quickly. © 2004 Elsevier B.V. All rights reserved.

UR - http://www.scopus.com/inward/record.url?scp=19644377007&partnerID=8YFLogxK

U2 - 10.1016/j.jempfin.2004.04.006

DO - 10.1016/j.jempfin.2004.04.006

M3 - Article

VL - 12

SP - 353

EP - 373

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

SN - 0927-5398

IS - 3

ER -