2005•Journal of Derivatives and Quantitative Studies 선물연구Open access

The Effect of Futures Trading on Spot Market Liquidity

Ki Yool Ohk

Abstract

This study analyzes the effect of stock index futures trading on the price volatility and liquidity of spot markets, It is found that spot price volatility increases significantly after stock index futures are listed, This study partitions the trading activity series of sPOt markets into expected and unexpected components, and documents that unexpected spot-trading activities are associated with smaller sPOt price movements subsequent to the introduction of futures trading, This imolies that spot market liquidity has been increased by the intraduction of futures trading, Furthermore, this study examines the effect of futures-trading activity on the liquidity of spot markets, Results show that active futures markets enhance the liquidity of soot markets.

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Key concepts: Futures contract, Market liquidity, Spot market, Open outcry, Financial economics, Algorithmic trading, Forward market, Volatility (finance)