A note on the crash and participation in stock index futures

✍ Scribed by James T. Moser

• Publisher: John Wiley and Sons
• Year: 1994
• Tongue: English
• Weight: 140 KB
• Volume: 14
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990140110

✦ Synopsis

This communication documents a substantial change in the relationship between volume and open interest for the S&P 500 futures contract. Not unexpectedly, it affirms a positive association between volume and open interest. However, comparison of the relationship for the pre-and post-Crash periods implies that the elasticity of volume with respect to open interest increased from 0.16 before the Crash to 0.98 afterwards. This suggests a substantial change in trading strategies. Further evidence suggests that the decrease in contract volume following the Crash was not a direct result of the Crash, but to subsequent events. Data employed in the specification are the levels of volume and open interest for S&P 500 futures trading at the Chicago Mercantile Exchange in the period April 23, 1982, through January 10, 1990. The data are contract volume and open interest across all active contracts. Inclusion of all actively traded contracts obviates the need for ad hoc procedures to accommodate rollovers as contracts expire. The underlying question addressed by the specification is whether the Crash affected the level of contract participation or if it affected The analysis and conclusion of this article are those of the author and do not indicate concurrence by the members of the research staff, the Board of Governors, or the Federal Reserve Banks.