How electronic trading affects bid-ask spreads and arbitrage efficiency between index futures and options

Kevin H.K. Cheng; Joseph K.W. Fung; Yiuman Tse

doi:10.1002/fut.20152

How electronic trading affects bid-ask spreads and arbitrage efficiency between index futures and options

Kevin H.K. Cheng, Joseph K.W. Fung, Yiuman Tse^*

^*Corresponding author for this work

Research output: Contribution to journal › Journal article › peer-review

12 Citations (Scopus)

Abstract

This paper examines the impact of switching to electronic trading on the relative pricing efficiency of Hang Sang Index futures and options contracts traded on the Hong Kong exchange. The study is motivated by the recent shift in 2000 from the pit to an electronic trading platform. Electronic trading leads to lower bid-ask spreads and less price clustering than floor trading in both the options and futures markets. Mispricing between futures and options drops significantly after the change. Quicker correction of mispricing indicates a significant improvement in dynamic inter-market arbitrage efficiency with electronic trading.

Original language	English
Pages (from-to)	375-398
Number of pages	24
Journal	Journal of Futures Markets
Volume	25
Issue number	4
DOIs	https://doi.org/10.1002/fut.20152
Publication status	Published - Apr 2005

Scopus Subject Areas

Accounting
General Business,Management and Accounting
Finance
Economics and Econometrics

Access to Document

10.1002/fut.20152

Cite this

@article{5b5cee8afeaf48c2bbe4ed2d91b6c695,

title = "How electronic trading affects bid-ask spreads and arbitrage efficiency between index futures and options",

abstract = "This paper examines the impact of switching to electronic trading on the relative pricing efficiency of Hang Sang Index futures and options contracts traded on the Hong Kong exchange. The study is motivated by the recent shift in 2000 from the pit to an electronic trading platform. Electronic trading leads to lower bid-ask spreads and less price clustering than floor trading in both the options and futures markets. Mispricing between futures and options drops significantly after the change. Quicker correction of mispricing indicates a significant improvement in dynamic inter-market arbitrage efficiency with electronic trading.",

author = "Cheng, {Kevin H.K.} and Fung, {Joseph K.W.} and Yiuman Tse",

year = "2005",

month = apr,

doi = "10.1002/fut.20152",

language = "English",

volume = "25",

pages = "375--398",

journal = "Journal of Futures Markets",

issn = "0270-7314",

publisher = "Wiley-Liss Inc.",

number = "4",

}

TY - JOUR

T1 - How electronic trading affects bid-ask spreads and arbitrage efficiency between index futures and options

AU - Cheng, Kevin H.K.

AU - Fung, Joseph K.W.

AU - Tse, Yiuman

PY - 2005/4

Y1 - 2005/4

N2 - This paper examines the impact of switching to electronic trading on the relative pricing efficiency of Hang Sang Index futures and options contracts traded on the Hong Kong exchange. The study is motivated by the recent shift in 2000 from the pit to an electronic trading platform. Electronic trading leads to lower bid-ask spreads and less price clustering than floor trading in both the options and futures markets. Mispricing between futures and options drops significantly after the change. Quicker correction of mispricing indicates a significant improvement in dynamic inter-market arbitrage efficiency with electronic trading.

AB - This paper examines the impact of switching to electronic trading on the relative pricing efficiency of Hang Sang Index futures and options contracts traded on the Hong Kong exchange. The study is motivated by the recent shift in 2000 from the pit to an electronic trading platform. Electronic trading leads to lower bid-ask spreads and less price clustering than floor trading in both the options and futures markets. Mispricing between futures and options drops significantly after the change. Quicker correction of mispricing indicates a significant improvement in dynamic inter-market arbitrage efficiency with electronic trading.

UR - http://www.scopus.com/inward/record.url?scp=14544291505&partnerID=8YFLogxK

U2 - 10.1002/fut.20152

DO - 10.1002/fut.20152

M3 - Journal article

AN - SCOPUS:14544291505

SN - 0270-7314

VL - 25

SP - 375

EP - 398

JO - Journal of Futures Markets

JF - Journal of Futures Markets

IS - 4

ER -

How electronic trading affects bid-ask spreads and arbitrage efficiency between index futures and options

Abstract

Scopus Subject Areas

Access to Document

Other files and links

Fingerprint

Cite this