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Extreme price clustering in the London equity endex futures and options market

ap Gwilym, Owain, Clare, Andrew and Thomas, Stephen (1998) Extreme price clustering in the London equity endex futures and options market Journal of Banking & Finance, 22, (9), pp. 1193-1206. (doi:10.1016/S0378-4266(98)00054-5).

Record type: Article

Abstract

Price clustering and optimal tick sizes have recently been topics of substantial public policy interest, and this paper presents evidence which is relevant to both debates. Around 98% of quoted and traded prices for LIFFE stock index derivatives are found to occur at even ticks. We report that clustering increases with volatility and transaction frequency, and decreases with trade size, and find that the proportion of odd ticks is significantly lower near the market open and higher near the close. Further, an inverse relationship is reported between bid–ask spreads and the number of odd ticks, and spreads cluster at even-tick values. This evidence of extreme price clustering is the first to be presented for financial derivatives. The results support both the price resolution and the negotiation hypotheses of price clustering.

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More information

Published date: 1998
Keywords: clustering, nasdaq, tick size, bid–ask spreads, intraday data
Organisations: Management

Identifiers

Local EPrints ID: 37366
URI: http://eprints.soton.ac.uk/id/eprint/37366
ISSN: 0378-4266
PURE UUID: f8a17e29-4268-4d40-bd0f-0a5d1c3765b0

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Date deposited: 08 Mar 2007
Last modified: 17 Jul 2017 15:42

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Contributors

Author: Owain ap Gwilym
Author: Andrew Clare
Author: Stephen Thomas

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