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Effective Spread (effective + spread)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting100%

Selected Abstracts

Execution quality in open-outcry futures markets

THE JOURNAL OF FUTURES MARKETS, Issue 11 2005
Alexander Kurov
This study examines the composition of customer order .flow and the execution quality for different types of customer orders in six futures pits of the Chicago Mercantile Exchange (CME). It is shown that off-exchange customers frequently provide liquidity to other traders by submitting limit orders. The determinants of customers' choice between limit and market orders are examined, and it is found that higher bid,ask spreads increase the limit-order submission frequency, and increased price volatility makes limit-order submission less likely. Effective spreads, trading revenues, and turnaround times for customer liquidity-demanding and limit orders are also documented. Consistent with evidence from equity markets, the results show that limit-order traders receive better executions than traders using liquidity-demanding orders, but incur adverse selection costs. © 2005 Wiley Periodicals, Inc. Jrl Fut Mark 25:1067,1092, 2005 [source]

Corporate Governance and Equity Liquidity: analysis of S&P transparency and disclosure rankings

CORPORATE GOVERNANCE, Issue 4 2007
Wei-Peng Chen
This paper sets out to investigate the effects of disclosure, and other corporate governance mechanisms, on equity liquidity, arguing that those companies adopting poor information transparency and disclosure practices will experience serious information asymmetry. Since poor corporate governance leads to greater information asymmetry, liquidity providers will incur relatively higher adverse information risks and will therefore offer higher information asymmetry components in their effective bid-ask spreads. The Transparency and Disclosure (T&D) rankings of the individual stocks on the S&P 500 index are employed to examine whether firms with greater T&D rankings have lower information asymmetry components and lower stock spreads. Our results reveal that the economic costs of equity liquidity, i.e. the effective spread and the quoted half-spread, are greater for those companies with poor information transparency and disclosure practices. [source]

How is Futures Trading Affected by the Move to a Computerized Trading System?

JOURNAL OF BUSINESS FINANCE & ACCOUNTING, Issue 7-8 2006
Lessons from the LIFFE FTSE 100 Contract
Abstract:, We consider the impact of the May 1999 move to screen trading of the LIFFE FTSE 100 index futures contract. This resulted in a narrowing of the effective spread. Spread determinants are broadly similar in the two regimes. The narrowing of the spread appears due to increased competition among traders and a decline in tick-level volatility rather than to the way these or other variables affect the spread. Market depth appears largely unaffected. Under screen trading, realized spreads widen as more limit orders are taken up rather than in relation to order size per se. [source]

Equilibrium in a Dynamic Limit Order Market

THE JOURNAL OF FINANCE, Issue 5 2005
RONALD L. GOETTLER
ABSTRACT We model a dynamic limit order market as a stochastic sequential game with rational traders. Since the model is analytically intractable, we provide an algorithm based on Pakes and McGuire (2001) to find a stationary Markov-perfect equilibrium. We then generate artificial time series and perform comparative dynamics. Conditional on a transaction, the midpoint of the quoted prices is not a good proxy for the true value. Further, transaction costs paid by market order submitters are negative on average, and negatively correlated with the effective spread. Reducing the tick size is not Pareto improving but increases total investor surplus. [source]

Tick size reduction, execution costs, and informational efficiency in the regular and E-mini Nasdaq-100 index futures markets

THE JOURNAL OF FUTURES MARKETS, Issue 9 2008
Alexander Kurov
On April 2, 2006, the Chicago Mercantile Exchange reduced the minimum tick size of the floor-traded and E-mini Nasdaq-100 futures from 0.5 to 0.25 index points. This study examines the effect of this change in the contract design on execution costs, informational efficiency, and price discovery. The results show a significant reduction in the effective spreads in both of the contract markets but especially in the electronically traded E-mini futures. The paper also finds that the tick size reduction has improved price discovery and informational efficiency in the E-mini futures market. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28:871,888, 2008 [source]