Abstract
Using intraday bid-ask quotes of single-stock futures (SSFs) contracts and the underlying stocks, the pricing and informational efficiency of SSF traded on the Hong Kong Exchange are examined. Both the SSFs and the stocks are traded on electronic platforms. The market microstructure and the data obviate the problems of stale and non-executable prices as well as uncertain bid-ask bounce of the thinly traded futures contracts. Nominal price comparisons show that more than 80% of SSF quotes are inferior to stock quotes. More than 99% of the observed futures spreads are above one stock tick compared with only 2% of those for stocks. After adjusting for the cost-of-carry, however, SSFs are fairly priced. Given higher stock trading costs, non-members should even find the futures attractively priced. Thus, the absence of competitive market maker does not bias prices so as to discourage trading. SSF quotes also account for one-third of price discovery despite their low volume.
| Original language | English |
|---|---|
| Pages (from-to) | 518-536 |
| Number of pages | 19 |
| Journal | Journal of Futures Markets |
| Volume | 28 |
| Issue number | 6 |
| DOIs | |
| Publication status | Published - Jun 2008 |
| Externally published | Yes |