We exploit an extensive high-frequency data set of all individual equity options trading at New York Stock Exchange London International Financial Futures and Options Exchange (Amsterdam, London and ...Paris) in order to study the determination of liquidity during the trading day. In particular, we focus on two main aspects of option liquidity: (i) the intraday behaviour of equity option liquidity and its determinants and (ii) the influence of macroeconomic events and commonality on intraday equity option liquidity. Inventory management models cannot explain the intraday variation in option spreads and depths. Instead, we show that the option liquidity measures are strongly correlated with option volatility. Increases in volatility are associated with decreases in liquidity, a finding that is in line with information asymmetry models and the derivatives hedging theory. However, the relationship between spreads and volume varies across the three markets. Option liquidity reacts strongly to macroeconomic news announcements, especially US events. The average systematic liquidity component is 12% for Amsterdam, 14% for London and 16% for Paris.
Over the 2005-2013 timeframe, the wheat world market has witnessed an upward trend of quotations at the main stock exchanges in the United States and Europe, while all other agricultural raw ...materials have seen fluctuations in prices, caused by the global economic crisis. An important influence on the evolution of quotations had the fundamental factors (production, consumption, trade) specific to that product. This paper examines the influences which led to the wheat quotes trends at The Chicago Board of Trade, The London International Financial Futures Exchange and MATIF Futures Exchange (Paris), identifying characteristics of the international market in the period 2005-2012 as a whole, but also a thorough approach of the situation in the year 2013. Also, the second section analyzes the fundamentals of the world wheat market, the main producing, consuming, importing and exporting countries in the agricultural seasons. In addition, a distinct point is represented by the analysis of the wheat market in Romania, both from the prices point of view, and fundamental factors.
This study demonstrates that intraday volume and return on LIFFE interest rate and currency futures exhibit an asymmetric volume‐return relationship characterised by significantly larger volume ...associated with negative returns than with non‐negative returns. This finding is unlike the stylised asymmetric relation often observed in equity markets, where the volume on price rise is larger than the volume on price decline. The asymmetric relationship in LIFFE futures is also found to be dynamic as the direction of asymmetry can reverse during the day. It has been argued in the past that a costly short sale restriction that requires a higher transaction cost on a short position than on a long position is responsible for the asymmetric effect in equity markets. Since such a restriction is absent in futures markets, they should not exhibit any asymmetric volume behaviour. Based on the results of this research, the costly short sale hypothesis is rejected. An alternative explanation of the asymmetric relation observed in futures is presented based on recent information models that take into consideration asymmetrically‐informed traders, their dispersion of beliefs, quality and quantity of the information signal, and how the traders process it. The paper also confirms a strong U‐shape trading pattern in 15‐minute volume, but no such pattern is identified in intraday returns.
This article examines the partial adjustment factors of Financial Times Stock Exchange (FTSE) 100 stock index and stock index futures. Using high frequency data from 15 January 1997 to 17 March 2000, ...it aims to assess the informational impact of the electronic trading systems implemented at the London Stock Exchange and London International Financial Futures Exchange (LIFFE). The results suggest that information runs mainly from the futures market to the spot market. We find that the introduction of stock exchange trading system, in October 1997, has increased the FTSE 100 index's absolute efficiency; however, it reduced the informational feedback to the futures market. The implementation of LIFFE CONNECT at LIFFE, in May 1999, has reduced the absolute and relative efficiency of FTSE 100 futures. These findings seem to imply that during the period under scrutiny electronic trading increased the level of microstructural noise, probably due to the bid-ask bounce and order flow imbalances.
We develop a multiple-stage algorithm for detecting outliers in Ultra High-Frequency financial market data. We show that an efficient data filter needs to address four effects: the minimum tick size, ...the price level, the volatility of prices and the distribution of returns. We argue that previous studies tend to address only the distribution of returns, and may tend to 'overscrub' a data set. In this study, we address these issues in the market microstructure element of the algorithm. In the statistical element, we implement the robust median absolute deviation method to take into account the statistical properties of financial time series. The data filter is then tested against previous data-cleaning techniques and validated using a rich individual equity options transactions data set from the London International Financial Futures and Options Exchange. The paper has many relevant insights for any practitioner who uses high frequency derivatives data, for example, for market analysis or for developing trading strategies.
In this paper we describe a period of strategic crisis (1997–2000) at the London International Financial Futures and Options Exchange (LIFFE) precipitated by the loss of a key benchmark product from ...their manual trading environment to an electronic trading platform (DTB/Eurex). Using Bower and Christensen's (1995a) notion of disruptive technology, our analysis starts by examining the response of major international financial futures exchanges and considers why the industry incumbents ignored the potential threat from electronic trading for so long. Widening our focus to examine responses from the broader financial market community to these events, we then embed LIFFE's story in the organizational literature on sensemaking. This provides the theory of disruptive technology with an analysis of the meaning-making processes surrounding it and provides evidence for an empirically grounded form of sensemaking, which we call strategic risk positioning. Our findings are of interest both to practitioners in incumbent organizations responsible for managing potential threats from new entrants and academics attempting to develop theoretical tools to provide support during strategic crises associated with new technology adoption.
The attractiveness of floor trading versus anonymous electronic trading systems for traders is analysed. We hypothesize that in times of low information intensity, the insight into the order book of ...the electronic trading system provides more valuable information than floor trading, but in times of high information intensity, this is not true. Thus, the electronic system's market share in trading volume should decline when information intensity increases. This hypothesis is tested by DTB and LIFFE data on Bund-Future trading in the period 1991 to 1995. In the first years of trading, the DTB's market share is inversely related to price volatility and trading volume as proxies for information intensity. In recent years, this relation fades away; this can be explained by the high frequency of transactions which implies a steady flow of information on transactions.
We build a framework for modelling the deviation of observed option prices from the Black & Scholes prices. We use a flexible model for a density, a two sided switching Weibull, to capture the ...implied volatility. The model can be used to generate prices, it can take into account no-arbitrage bounds for option prices and is capable of generating such stylised facts as the smile effect. We apply this methodology to LIFFE options on German government bond futures.
We use a data set consisting of a complete history of all transactions and quotes to examine intraday patterns in trading volume, volatility and the quoted bid-ask spread in the market for FTSE-100 ...index futures. We document a number of regularities in the pattern of daily returns and volatility of the cash index. We also document intraday patterns in the basis, i.e. the contemporaneous difference between the futures price and the underlying cash index level. In general, we find returns vary over the day, reflecting in particular the influence of the US market openings in early afternoon London-time. We find that, while both volume and volatility exhibit a U-shaped pattern over the day, movements in the spread tend if anything to follow the opposite pattern. As far as consistency with microstructure models is concerned, our results are more supportive of the Brock and Kleidon model than the Admati and Pfleiderer model.
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