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Structural changes, bid-ask spread composition and tick size in inter-bank futures trading

McGroarty, Frank, ap Gwilym, Owain and Thomas, Stephen (2011) Structural changes, bid-ask spread composition and tick size in inter-bank futures trading European Journal of Finance, 17, (4), pp. 285-306. (doi:10.1080/1351847X.2010.481465).

Record type: Article

Abstract

This paper studies a period containing three major structural changes, which constitute a natural experiment in the NYSE.Euronext-LIFFE European short-term interest rate (STIR) futures market. These changes comprise (1) a 50% reduction in minimum tick size for the most heavily traded contract, (2) European Monetary Union and (3) the transition from open outcry to electronic trading. We analyse a number of microstructure features of the four largest European interest rate futures contracts throughout this period. In particular, we focus on bid–ask spread composition using a recent model which is appropriate for this market structure. Our analysis identifies the tick size as the largest bid–ask spread component in almost every instance, which suggests that participants in this STIR future market might benefit from a reduction in minimum tick sizes.

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More information

e-pub ahead of print date: 28 June 2010
Published date: 2011
Keywords: bid–ask spreads, futures, market microstructure, price clustering, tick size
Organisations: Centre for Digital, Interactive & Data Driven Marketing, Management

Identifiers

Local EPrints ID: 79324
URI: http://eprints.soton.ac.uk/id/eprint/79324
ISSN: 1351-847X
PURE UUID: 74e277a1-3350-46d8-82f6-4bc1f93de542

Catalogue record

Date deposited: 19 Mar 2010
Last modified: 18 Jul 2017 23:18

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