RT Journal Article
SR Electronic
T1 Price Discovery and Liquidity Characteristics for U.S. Electronic Futures and ETF Markets
JF The Journal of Trading
FD Institutional Investor Journals
SP 59
OP 72
DO 10.3905/jot.2017.12.2.059
VO 12
IS 2
A1 A. Senol Oztekin
A1 Suchismita Mishra
A1 Pankaj K. Jain
A1 Robert T. Daigler
A1 Sascha Strobl
A1 Richard D. Holowczak
YR 2017
UL https://pm-research.com/content/12/2/59.abstract
AB Using high-frequency datasets, we examine price discovery and its determinants for equivalent instruments across futures markets, electronically traded exchange-traded funds (ETFs), and spot markets. We compare futures to ETFs—leveraged and unleveraged—for stock indexes, using both a normal period and the 2008 financial crisis. Yan and Zivot’s information leadership procedure is employed to determine which instrument dominates price discovery. We then examine the determinants and characteristics of the price discovery process using Hasbrouck’s sequential trading model for the price impact of large trades. We find that most price discovery occurs in the more liquid and highly leveraged futures market. Although liquidity declined in all markets during the financial crisis, the relative contribution of ETFs to price discovery increased. We also find that the information leadership shares of futures and ETFs depend on the ratio of the quoted percentage spread between futures and ETFs and the aggregate volatility occurring in these markets.TOPICS: Exchange-traded funds and applications, big data/machine learning, futures and forward contracts