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

Edward Curran*, Jack Hunt, Vito Mollica

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

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.

Original languageEnglish
Pages (from-to)1793-1806
Number of pages14
JournalJournal of Futures Markets
Volume40
Issue number11
Early online date19 Jun 2020
DOIs
Publication statusPublished - 1 Nov 2020

Keywords

  • market wide position limits
  • minimum contract value
  • single stock futures
  • trading protocols

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