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Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures

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  • Edward Curran
  • Jack Hunt
  • Vito Mollica

Abstract

We show how trading protocols impede the price discovery process in single stock futures as implicit trade costs outweigh explicit costs. Despite the trade volume dominance, trade costs advantage and leverage efficiency in futures markets, single stock futures account for only 35% of the price discovery vis‐á‐vis the spot market. Futures market's informational efficiency is adversely affected by market frictions in the form of marketwide position limits, minimum contract values, and margin requirements.

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  • Edward Curran & Jack Hunt & Vito Mollica, 2020. "Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(11), pages 1793-1806, November.
    • Handle: RePEc:wly:jfutmk:v:40:y:2020:i:11:p:1793-1806
    DOI: 10.1002/fut.22123
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    1. Edward Curran & Jack Hunt & Vito Mollica, 2021. "Single stock futures and their impact on market quality: Be careful what you wish for," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1677-1692, November.

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