Essays in microstructure of futures markets.
Item
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Title
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Essays in microstructure of futures markets.
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Identifier
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AAI9946181
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identifier
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9946181
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Creator
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Karagozoglu, Ahmet Kamil.
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Contributor
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Adviser: Ashok Vora
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Date
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1999
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance | Business Administration, Banking
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Abstract
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The first essay investigates the potential success of an explicit futures contract when an implicit one, which can duplicate it, exists. It is hypothesized that the success of the explicit futures contract depends on its value-added being greater than that of its implicit counterpart given that sufficient hedging demand exists for it. Following a discussion of value-added analysis, hedging effectiveness of the Euro-rate Differential (DIFF), the Currency Cross-rate (CROSS) futures contracts, and their implicit counterparts are calculated and tests of relative hedging effectiveness of these contracts are performed.;The second essay examines the effects of both decreases and increases in futures contract size on the microstructure of a futures market. The Sydney Futures Exchange (SFE) modified the terms and conditions of two of its major contracts: Share Price Index (SPI) futures and 90-day Bank Accepted Bills (BAB) futures. The size of the SPI futures contract was decreased by a factor of four, and the minimum tick was raised. The BAB contract was doubled in size, with no changes made to minimum tick size. After controlling for market factors, the results indicate that the respecification of the SPI futures (decreased size) resulted in higher trading volume, while the respecification of the BAB futures (increased size) decreased trading volume. In these two cases, decreasing the futures contract size was effective in terms of enhancing liquidity while increasing the contract size diminished liquidity.;Third essay develops a transaction cost model of the microstructure of futures markets and supports it with empirical evidence. The research examines the factors affecting the bid-ask spread, trading volume, and open interest patterns in contracts with different times to expiration on the same underlying asset. The model divides futures market participants into three groups: hedgers, speculators, and market makers. Provision of liquidity and its effect on the choice of futures contracts is the central theme in investigating the interactions among these three groups of market participants. The model's predictions explain the observed differences in the number of deferred contracts trading in the various futures markets, and support conclusions concerning hedgers' optimal choice of portfolios of contracts with different expirations in order to hedge underlying maturities that are not covered by existing contract maturities.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
