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Price Dynamics in the Regular and E-Mini Futures Markets

Published online by Cambridge University Press:  06 April 2009

Alexander Kurov  and
Dennis J. Lasser
Alexander Kurov
Affiliation:
[email protected], School of Management, SUNY-Binghamton, Binghamton, New York, 13902–6000.
Dennis J. Lasser
Affiliation:
[email protected], School of Management, SUNY-Binghamton, Binghamton, New York, 13902–6000.
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Abstract

This paper examines the price dynamics in the S&P 500 and Nasdaq-100 index futures contracts. By utilizing transactions data with attached trader type identification codes, we are able to analyze price dynamics for trades initiated by exchange locals and off-exchange customers. The empirical results show that price discovery appears to be initiated in the E-mini index futures contracts and that trades initiated by exchange locals seem to be more informative than those initiated by off-exchange traders. Furthermore, results show that exchange locals appear to make informed trades on the E-mini contracts around large trades that occur on the open outcry floor. We maintain that the exchange locals' ability to observe pit dynamics may contribute toward explaining the price leadership of the Emini contracts. Overall, the results are consistent with the notion that exchange locals are informed traders who derive their informational advantage from the proximity to order flow.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 2 , June 2004 , pp. 365 - 384
Copyright
Copyright © School of Business Administration, University of Washington 2004

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