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Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market |
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| Authors: | Poshakwale Sunil S. Taunson Jude W. Mandal Anandadeep Theobald Michael |
| Affiliation: | 1.Centre for Research in Finance, Cranfield School of Management, Cranfield University, Cranfield, MK43 0AL, UK ;2.Universiti Malaysia Sabah, Beg Berkunci 2073, 88899, Kota Kinabalu, Malaysia ;3.University of Birmingham, Birmingham, B15 2TT, UK ;4.Emeritus Professor, University of Birmingham, Birmingham, B15 2TT, UK ; |
| Abstract: | We provide robust evidence of the impact on spot market liquidity and the pricing efficiency of FBM-FKLI index futures following the introduction of lower tick sizes for the stocks listed in the Bursa Malaysia. Our findings show a significant increase in unexpected trading volume and the speed of mean reversion of the futures mispricing. We find that the increase in the unexpected trading volume of the underlying stocks helps in reducing inter-market price discrepancies. The findings offer new evidence that lowering of tick sizes improves pricing efficiency in the Malaysian futures market. |
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