Bid-ask spreads, volatility, quote revisions, and trades of thinly traded futures contracts

✍ Scribed by David K. Ding; Charlie Charoenwong

• Publisher: John Wiley and Sons
• Year: 2003
• Tongue: English
• Weight: 199 KB
• Volume: 23
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.10071

✦ Synopsis

Abstract

We investigate intraday bid‐ask spreads (BAS), volatility, and trading activity of thinly
traded equity index futures contracts on the Singapore Exchange. Contrary to previous findings, we find a rather
flat BAS pattern during the trading day. However, consistent with past findings, an increase in risk widens the
spread and a higher trading activity reduces it. When trading occurs in a day, spreads are reduced. No
significant difference in volatility between days with and without trades was detected. When trades occur, quote
revisions increase, and it is positively related to the number of trades. An increase in the number of quote
revisions increases the likelihood of a transaction, and when quotes are current, revisions that are accompanied
by trades carry new information. We provide evidence that contracts that are thinly traded may possess liquidity
attributes as long as their price quotes remain current. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark
23:455–486, 2003