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Order Imbalance in the FTSE Index Futures Market: Electronic versus Open Outcry Trading

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  • Zi Ning
  • Yiuman Tse

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.

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  • Zi Ning & Yiuman Tse, 2009. "Order Imbalance in the FTSE Index Futures Market: Electronic versus Open Outcry Trading," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 36(1‐2), pages 230-252, January.
    • Handle: RePEc:bla:jbfnac:v:36:y:2009:i:1-2:p:230-252
    DOI: 10.1111/j.1468-5957.2008.02116.x
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    3. Lin, Emily & Lee, Cheng-Few & Wang, Kehluh, 2013. "Futures mispricing, order imbalance, and short-selling constraints," International Review of Economics & Finance, Elsevier, vol. 25(C), pages 408-423.
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    6. Czudaj, Robert L., 2019. "Dynamics between trading volume, volatility and open interest in agricultural futures markets: A Bayesian time-varying coefficient approach," Econometrics and Statistics, Elsevier, vol. 12(C), pages 78-145.

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