Liquidity without volume. II. Using block orders to measure market resiliency

An article examines 2 low-volume futures markets that were designed from the start to tap the liquidity of inter-bank currency markets. These contracts, which trade during European trading hours at the International Financial Center in Dublin (FINEX), are the deutsche mark/Japanese yen and deutsche...

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Bibliographic Details
Published in:The journal of futures markets 1998-05, Vol.18 (3), p.281-296
Main Authors: Clyman, Dana R., Jaycobs, Richard
Format: Article
Language:English
Subjects:
Deutsche marks
Econometrics
Foreign exchange markets
Forward exchange contracts
Futures exchanges
Futures market
International finance
Liquidity
Spread
Studies
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Summary:An article examines 2 low-volume futures markets that were designed from the start to tap the liquidity of inter-bank currency markets. These contracts, which trade during European trading hours at the International Financial Center in Dublin (FINEX), are the deutsche mark/Japanese yen and deutsche mark/French franc contracts. FINEX markets were selected because FINEX's liquidity building strategy has focused not on promoting trading by locals, the traditional source of liquidity in futures markets, but rather on promoting risk-arbitrage with the interbank market. The paper makes a methodological contribution by pioneering a new methodology for examining liquidity. When this methodology is used to explore the resiliency of the 2 cross-currency contracts, statistically significant positive relationships between the size of the order and the size of the market are found. However, the relationships do not appear to be economically significant.
ISSN:0270-7314
1096-9934
DOI:10.1002/(SICI)1096-9934(199805)18:3<281::AID-FUT3>3.0.CO;2-P