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This study examines the impact of migration to electronic trading on the relative informational efficiency between an index futures contract and the underlying cash index. The recent move to electronic trading of the Hong Kong Hang Seng Index futures contract provides an opportunity to study how the change affects the effective bid and ask spread in the futures market and the dynamic relationship between the futures and the underlying cash index. Our findings suggest that the migration reduced the effective spread of futures contract. In addition, the information flow from futures to the cash index is strengthened while the instantaneous feedback between futures and cash markets is weakened after the migration. The instantaneous feedback and futures to cash feedback information flow are strengthened in a falling market. However, consistent with the literature, a trading migration from floor to electronic trading reduces the release of lumpy information, which tends to reduce the feedback from futures to cash market. The Impact of Electronic-Trading on the Relative Informational Efficiency of Index Futures Market 1.

The electronic limit-order trading system have been sweeping the exchanges around the globe since last decade. This paper studies a case of the transition, which is a group of less-liquid stocks moving to SETS on the London Stock Exchange. The evidence reveals that the liquidity of those stocks substantially drops after the move. Keywords: dealer; limit order; liquidity; London Stock Exchange. JEL classification: G19

The present paper examines empirically in a time series perspective how well certain types of nonlinear models as well as a linear long memory model match the observed correlation function of FTSE 100 index futures mispric-ing.

his many helpful comments and suggestions. His contribution to this project is so substantial that he deserves to be a co-author of the paper. The authors also appreciate helpful comments from seminar participants of the focused research group seminar at HKBU. The authors want to thank the excellent research support of Simon Kwok and Agnes Lee. Simon has been instrumental in implementing many challenging analytical work. The views expressed in this paper are those of the author, and do not necessarily reflect those of the Hong Kong Institute for Monetary Research, its Council of Advisors, or the Board of Directors. 2Order Imbalance and the Dynamics of Index and Futures Prices This study examines empirically with complete transaction records of index futures and of the index stocks, as well as the bid/ask price quotes of the latter, the impact of stock market order imbalance on the dynamic behavior of index futures and the underlying cash index. The study purges spurious correlation in the index by using an estimate of the “true ” index with highly synchronous and active quotes of individual stocks. To capture the nonlinear dynamics of the index and futures prices, the study

This paper investigates the convergence between the prices of ADRs and the prices of the Mexican traded shares using a sample of 21 dually listed shares. Since both markets have similar trading hours, standard arbitrage considerations should make persistent deviation from price parity rare. We use a STAR model, where the dynamics of convergence to price parity are influenced by the size of the deviation from price parity. Based on different tests, we select the ESTAR model. Deviations from price parity tend to die out quickly; for 14 out of 21 pairs it takes less than two days for the deviations from price parity to be reduced by half. The average half-life of a shock to price parity is 3.1 business days, while the median half-life is 1.1 business days. By allowing a non-linear adjustment process, the average half-life is reduced by more than 50 % when compared to the standard linear arbitrage model. We find that several liquidity indicators are positively correlated to the speed of convergence to price parity.

This paper provides an empirical description of the behaviour of excess returns on UK government discount bonds in terms of risk factors such as the forward premium, the slope of the term structure, dividend yields and excess stock returns. We identify the existence of a time-varying term structure of expected excess returns. Further, the dynamics of the expected returns are characterised by regime-switching behaviour where the transition from one regime to the other is controlled by the slope of the term structure of interest rates. The first regime, which is characterised by flat or downward sloping term structures, occurs during periods of economic recession. The second regime, which is characterised by upward sloping term structures, occurs during periods of economic expansion. The main risk factors explaining expected returns are the slope of the term structure in the recessionary regime and the excess stock returns in the expansionary regime.

This study examines trading activities of market makers for 25 FTSE-100 component stocks to assess the competitiveness of the London Stock Exchange (LSE). The results show that market makers can obtain relatively large shares of public order flows through posting competitive prices with significant quote depths. Market share leaders do not rely on preferenced trading in securing public order flow on the London market because preference trading is limited to small-sized trades. Trading profitability of LSE market makers is not driven by their market share; rather they are rewarded with higher spread margins for assuming trading risks. The overall findings from the study indicate that the LSE is a competitive dealership market.