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SETS, arbitrage activity, and stock price dynamics
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UNSPECIFIED (2000) SETS, arbitrage activity, and stock price dynamics. JOURNAL OF BANKING & FINANCE, 24 (8). pp. 1289-1306.
Full text not available from this repository, contact author.Abstract
This paper provides an empirical description of the relationship between the trading system operated by a stock exchange and the trading behaviour of heterogeneous investors who use the exchange. The recent introduction of SETS in the London Stock Exchange provides an excellent opportunity to study the impact of an electronic trading system upon traders who use the exchange. Using the cost-of-carry model of futures prices we estimate (non-linearly) the transaction costs and trade speeds faced by arbitragers who take advantage of mispricing of FTSE 100 futures contracts relative to the spot prices of the stocks that make up the FTSE100 stock index. We divide the sample period into pre-SETS and post-SETS sample periods and conduct a comparative study of arbitrager behaviour under different trading systems. The results indicate that there has been a significant reduction in the level of transaction costs faced by arbitragers and in the degree of transaction cost heterogeneity. Finally, generalised impulse response functions show that both spot and futures prices adjust more quickly in the post-SETS period. These results suggest that both spot and futures markets have become more efficient under SETS. (C) 2000 Elsevier Science B.V. All rights reserved. JEL classification: C14; C32.
| Item Type: | Journal Article | ||||
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| Subjects: | H Social Sciences > HG Finance H Social Sciences > HC Economic History and Conditions |
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| Journal or Publication Title: | JOURNAL OF BANKING & FINANCE | ||||
| Publisher: | ELSEVIER SCIENCE BV | ||||
| ISSN: | 0378-4266 | ||||
| Official Date: | August 2000 | ||||
| Dates: |
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| Volume: | 24 | ||||
| Number: | 8 | ||||
| Number of Pages: | 18 | ||||
| Page Range: | pp. 1289-1306 | ||||
| Publication Status: | Published |
Data sourced from Thomson Reuters' Web of Knowledge
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