Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures

We show how trading protocols impede the price discovery process in single stock futures as implicit trade costs outweigh explicit costs. Despite the trade volume dominance, trade costs advantage and leverage efficiency in futures markets, single stock futures account for only 35% of the price disco...

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Bibliographic Details
Published in:The journal of futures markets 2020-11, Vol.40 (11), p.1793-1806
Main Authors: Curran, Edward, Hunt, Jack, Mollica, Vito
Format: Article
Language:English
Subjects:
Discovery
Dominance
Financial markets
Futures
Futures market
Leverage
market wide position limits
minimum contract value
single stock futures
Stocks
Trading
trading protocols
Transaction costs
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Summary:We show how trading protocols impede the price discovery process in single stock futures as implicit trade costs outweigh explicit costs. Despite the trade volume dominance, trade costs advantage and leverage efficiency in futures markets, single stock futures account for only 35% of the price discovery vis‐á‐vis the spot market. Futures market's informational efficiency is adversely affected by market frictions in the form of marketwide position limits, minimum contract values, and margin requirements.
ISSN:0270-7314
1096-9934
DOI:10.1002/fut.22123