Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
963646 | Journal of International Financial Markets, Institutions and Money | 2007 | 14 Pages |
Abstract
The effect of the initiation of e-mini stock index futures (ESIFs) on the volatility components of S&P 500 stock index futures is herein investigated. The study decomposes S&P 500 stock index-related observed volatilities into unobserved fundamental volatility and transitory noise and utilizes the decomposition to test two hypotheses: the “clientele factor hypothesis” and the “information adjustment hypothesis”. The first hypothesis proposes that the ESIFs attract more noisy traders who prefer trading the friendly-size futures contracts. The second one proposes that the innovations of ESIFs improve the information flow of the futures markets. Using a stochastic volatility model, the empirical results are consistent with both of our proposed hypotheses.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Anthony H. Tu, Ming-Chun Wang,