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

Research output: Contribution to conferencePaperResearch

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 languageEnglish
Pages1-45
Number of pages45
DOIs
Publication statusPublished - 2009
EventFinancial Management Association 2009 Annual Meeting - Reno - Lake Tahoe, Nevada, United States
Duration: 21 Oct 200924 Oct 2009
Conference number: 23rd

Conference

ConferenceFinancial Management Association 2009 Annual Meeting
Abbreviated titleFMA Annual Meeting
CountryUnited States
CityNevada
Period21/10/0924/10/09

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    Gygax, A. F., Henker, T., Liu, W-M., & Loong, K. W. (2009). Migration of trading and the introduction of single stock futures on the underlying U.S. stocks. 1-45. Paper presented at Financial Management Association 2009 Annual Meeting, Nevada, United States. https://doi.org/10.2139/ssrn.1253622