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Open outcry versus electronic trading: Tests of market efficiency on crude palm oil futures
Author(s) -
Snaith Stuart,
Kellard Neil M.,
Ahmad Norzalina
Publication year - 2018
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.21899
Subject(s) - futures contract , open outcry , algorithmic trading , volatility (finance) , crude oil , futures market , palm oil , economics , price discovery , market efficiency , monetary economics , electronic trading , financial economics , alternative trading system , business , econometrics , agricultural science , finance , environmental science , petroleum engineering , engineering
Given the widespread transfer of trading to electronic platforms we ask whether such trading is more efficient than open outcry. Examining the Crude Palm Oil (CPO) market from 1995:06 to 2008:07, our findings, derived from a novel threshold autoregressive relative efficiency measure, are that efficiency is conditional on: (i) volatility; (ii) the maturity of the futures contract; and (iii) the market trading system. Specifically, when volatility is high, open outcry is superior for shorter maturities and electronic trading for longer maturities. These results suggest an efficiency skew and that there may be benefits to the coexistence of trading mechanisms.