Slippage in futures markets: Evidence from the Sydney Futures Exchange

Alex Frino*, Teddy Oetomo

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

23 Citations (Scopus)

Abstract

This article examines the market-impact cost of trades executed in futures markets, which is commonly referred to as slippage. With the use of a unique data set provided by the Sydney Futures Exchange, this article documents that slippage costs incurred in executing packages of trades in stock-index and interest-rate futures markets are significantly smaller than market-impact costs documented previously for equity markets. Furthermore, in contrast to research based on equity markets, there is little evidence that trade packages executed in futures markets convey information, or that purchases and sales behave differently. In fact, the evidence presented in this article implies that slippage in futures markets is entirely a liquidity cost, and symmetrical for purchases and sales. This is consistent with previous work, which conjectures that there is an absence of private information in stock-index and interest-rate futures markets. Finally, analogously to previous research, there is some evidence that trade size and the identity of traders are determinants of slippage; however, these variables explain less than 10% of the total variation in slippage.

Original languageEnglish
Pages (from-to)1129-1146
Number of pages18
JournalThe Journal of Futures Markets
Volume25
Issue number12
DOIs
Publication statusPublished - Dec 2005

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