Trading noise, adverse selection, and intraday bid-ask spreads in futures markets

Article Abstract:

The variations of intraday bid-ask spreads in futures prices is observed. Results show that the effective bid-ask spread exhibits higher values in the first and last 30 minutes of the day's trading session than any other time of the day. This may be due to more information uncertainty characteristic to those times of the day. The adverse selection hypothesis, which states that market makers tend to reuire a higher risk premium at these times to protect themselves from selective trading information, seem supported by the results.

Economic aspects, Futures market, Futures markets, Disclosure (Securities law)

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Limit moves and price resolution: a reply

Article Abstract:

The prices of Treasury bond futures are inclined to invert as a result of limit moves by overreacting investors. This is a hypothesis which was criticized on the grounds that future prices are regulated by price limit rules and that price changes may be caused by either investor overreaction and the influence of new information. It was noted that 50% of price changes happen before and after limit moves and the reasons behind price changes either as result of overreaction or new information cannot be determined.

Investors, not elsewhere classified, Management, Prices and rates, Investors, Treasury securities

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Dependence in commodity prices

Article Abstract:

The random walk hypothesis in cash prices is tested through a variance ratio test on 17 commodities. Results indicate that the time-variance relationship is not true for returns of short- and longer-term holding periods. Many daily commodity price series seem to have a positive dependence on new information, indicating market irrationality probably brought on by fads in the market. Market rigidity is indicated with traders' noninstantaneous response to unexpected information.

Testing, Random walks (Mathematics), Random walk theory, Commodity price indexes

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