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The components of bid‐ask spread and their determinants: TAIFEX versus SGX‐DT
Author(s) -
Huang Yu Chuan
Publication year - 2004
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.20113
Subject(s) - futures contract , bid–ask spread , equity (law) , open outcry , volatility (finance) , information asymmetry , stock exchange , financial economics , price discovery , electronic trading , high frequency trading , econometrics , bid price , economics , asymmetry , order (exchange) , stock (firearms) , business , algorithmic trading , alternative trading system , microeconomics , finance , geography , archaeology , physics , quantum mechanics , political science , law
This paper compares the intraday components of bid‐ask spread in Taiwan stock index futures traded on Taiwan Futures Exchange (TAIFEX) and Singapore Exchange Derivatives Trading Limited (SGX‐DT). Variables that determine the components of spread are also examined. SGX‐DT uses a floor trading system while TAIFEX uses an electronic call system. This study finds that both information asymmetry and order processing cost components exhibit U‐shaped patterns in the two markets, in contrast to previous findings for U.S. equity markets. Moreover, the information asymmetry components are lower in the TAIFEX relative to the SGX‐DT futures, suggesting that the continuous open outcry markets are more vulnerable to information asymmetry than the electronic call markets. The regression results show that volatility and information are the major determinants of the components while number of trades is not the major determinant of the order processing and information asymmetry components for both markets. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:835–860, 2004