Article
How Electronic Trading Affects Bid‐Ask Spreads and Arbitrage Efficiency Between Index Futures and Options
The Journal of Futures Markets
(2005)
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.
Disciplines
Publication Date
2005
DOI
10.1002/fut.20152
Citation Information
Yiuman Tse, Kevin H. K. Cheng and Joseph K. W. Fung. "How Electronic Trading Affects Bid‐Ask Spreads and Arbitrage Efficiency Between Index Futures and Options" The Journal of Futures Markets Vol. 25 Iss. 4 (2005) p. 375 - 398 Available at: http://works.bepress.com/yiuman-tse/130/