Migration of trading and the introduction of single stock futures on the underlying U.S. stocks

Andre F Gygax; Thomas Henker; Wai-Man Liu; Kok Wen Loong

doi:10.2139/ssrn.1253622

Migration of trading and the introduction of single stock futures on the underlying U.S. stocks

Andre F Gygax, Thomas Henker, Wai-Man Liu, Kok Wen Loong

Bond Business School

Research output: Contribution to conference › Paper › Research

Abstract

This study investigates where liquidity and informed trading takes place following the introduction of single stock futures (SSF) contracts on the OneChicago futures exchange. Specifically, we analyze the size and composition of proportional spreads for two sets of stocks, those that have single stock futures contracts and a matched control sample that does not have such contracts. We find that, after controlling for changes in spread determinants, the average proportional spreads, on average, decrease significantly after SSF are introduced. For NYSE stocks, while the average daily trading volume in the cash market is reduced by 389,000 shares, we find a corresponding increase in the average percentage of the adverse selection component in the spread of the cash asset. This pattern indicates a migration of liquidity trading to the SSF market as fund managers appear to adjust their portfolio positions in the secondary SSF market rather than in the primary stock market.

Original language	English
Pages	1-45
Number of pages	45
DOIs	https://doi.org/10.2139/ssrn.1253622
Publication status	Published - 2009
Event	Financial Management Association 2009 Annual Meeting - Reno - Lake Tahoe, Nevada, United States Duration: 21 Oct 2009 → 24 Oct 2009 Conference number: 23rd

Conference

Conference	Financial Management Association 2009 Annual Meeting
Abbreviated title	FMA Annual Meeting
Country/Territory	United States
City	Nevada
Period	21/10/09 → 24/10/09

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title = "Migration of trading and the introduction of single stock futures on the underlying U.S. stocks",

abstract = "This study investigates where liquidity and informed trading takes place following the introduction of single stock futures (SSF) contracts on the OneChicago futures exchange. Specifically, we analyze the size and composition of proportional spreads for two sets of stocks, those that have single stock futures contracts and a matched control sample that does not have such contracts. We find that, after controlling for changes in spread determinants, the average proportional spreads, on average, decrease significantly after SSF are introduced. For NYSE stocks, while the average daily trading volume in the cash market is reduced by 389,000 shares, we find a corresponding increase in the average percentage of the adverse selection component in the spread of the cash asset. This pattern indicates a migration of liquidity trading to the SSF market as fund managers appear to adjust their portfolio positions in the secondary SSF market rather than in the primary stock market.",

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year = "2009",

doi = "10.2139/ssrn.1253622",

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note = "Financial Management Association 2009 Annual Meeting, FMA Annual Meeting ; Conference date: 21-10-2009 Through 24-10-2009",

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AU - Gygax, Andre F

AU - Henker, Thomas

AU - Liu, Wai-Man

AU - Loong, Kok Wen

N1 - Conference code: 23rd

PY - 2009

Y1 - 2009

N2 - This study investigates where liquidity and informed trading takes place following the introduction of single stock futures (SSF) contracts on the OneChicago futures exchange. Specifically, we analyze the size and composition of proportional spreads for two sets of stocks, those that have single stock futures contracts and a matched control sample that does not have such contracts. We find that, after controlling for changes in spread determinants, the average proportional spreads, on average, decrease significantly after SSF are introduced. For NYSE stocks, while the average daily trading volume in the cash market is reduced by 389,000 shares, we find a corresponding increase in the average percentage of the adverse selection component in the spread of the cash asset. This pattern indicates a migration of liquidity trading to the SSF market as fund managers appear to adjust their portfolio positions in the secondary SSF market rather than in the primary stock market.

AB - This study investigates where liquidity and informed trading takes place following the introduction of single stock futures (SSF) contracts on the OneChicago futures exchange. Specifically, we analyze the size and composition of proportional spreads for two sets of stocks, those that have single stock futures contracts and a matched control sample that does not have such contracts. We find that, after controlling for changes in spread determinants, the average proportional spreads, on average, decrease significantly after SSF are introduced. For NYSE stocks, while the average daily trading volume in the cash market is reduced by 389,000 shares, we find a corresponding increase in the average percentage of the adverse selection component in the spread of the cash asset. This pattern indicates a migration of liquidity trading to the SSF market as fund managers appear to adjust their portfolio positions in the secondary SSF market rather than in the primary stock market.

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DO - 10.2139/ssrn.1253622

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T2 - Financial Management Association 2009 Annual Meeting

Y2 - 21 October 2009 through 24 October 2009

ER -

Migration of trading and the introduction of single stock futures on the underlying U.S. stocks

Abstract

Conference

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