Order Imbalance in the FTSE Index Futures Market: Electronic versus Open Outcry Trading |
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| Authors: | Zi Ning Yiuman Tse |
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| Affiliation: | The authors are from The University of Texas at San Antonio, USA. They thank the editor Andrew Stark, an anonymous referee, Jim Hackard, John Wald, and participants at the 2008 Midwest Financial Association Meeting in San Antonio for their valuable comments and suggestions. Tse acknowledges the financial support from a summer research grant of U.S. Global Investors, Inc. and the College of Business at The University of Texas at San Antonio. |
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| Abstract: | Abstract: This study examines trading activities before and after the transfer of the FTSE 100 index futures contract from open outcry to electronic trading. Daily order imbalance exhibits strong serial persistence in the electronic limit order market, but not in open-outcry trading. Both excess buying and selling reduce liquidity. In the electronic venue, prior market movements barely affect investors' buying or selling decisions. Excess buy orders do not generate any price impact, but sell orders do. Positive imbalances are more strongly autocorrelated than negative imbalances. No trading elements, such as order imbalance, volume, or open interest, are associated with volatility. Moreover, excess buying decreases volatility. Such evidence suggests that the development and growth of electronic trading has changed the dynamics of trading activities in many important ways. |
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| Keywords: | order imbalance index futures open outcry electronic market |
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