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Order Imbalance in the FTSE Index Futures Market: Electronic versus Open Outcry Trading
Author(s) -
Ning Zi,
Tse Yiuman
Publication year - 2009
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2008.02116.x
Subject(s) - open outcry , futures contract , electronic trading , market liquidity , volatility (finance) , order (exchange) , price discovery , algorithmic trading , business , financial economics , index (typography) , futures market , high frequency trading , monetary economics , economics , alternative trading system , finance , world wide web , computer science
Abstract: This study examines trading activities before and after the transfer of the FTSE 100 index futures contract from open outcry to electronic trading. Daily order imbalance exhibits strong serial persistence in the electronic limit order market, but not in open‐outcry trading. Both excess buying and selling reduce liquidity. In the electronic venue, prior market movements barely affect investors' buying or selling decisions. Excess buy orders do not generate any price impact, but sell orders do. Positive imbalances are more strongly autocorrelated than negative imbalances. No trading elements, such as order imbalance, volume, or open interest, are associated with volatility. Moreover, excess buying decreases volatility. Such evidence suggests that the development and growth of electronic trading has changed the dynamics of trading activities in many important ways.