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Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures |
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| Authors: | Edward Curran Jack Hunt Vito Mollica |
| Institution: | 1. Applied Finance, Macquarie University, North Ryde, Sydney, New South Wales, Australia;2. Applied Finance, Macquarie University, North Ryde, Sydney, New South Wales, Australia
RoZetta Institute, Sydney, New South Wales, Australia |
| 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. |
| Keywords: | market wide position limits minimum contract value single stock futures trading protocols |