Title: The introduction of electronically traded index futures and their impact on the underlying assets: the case of US index futures

Authors: Huimin Chung, Shumei Chiang

Addresses: Graduate Institute of Finance, National Chiao Tung University, 1001 Ta-Hsueh Road, HsinChu 300, Taiwan. ' Department of Finance, Lunghwa University of Science and Technology, No. 300, Sec. 1, Wanshou Rd., Gueishan Shiang, Taoyuan County 333, Taiwan

Abstract: This paper contributes to the understanding of whether the introduction of smaller-sized and electronically traded index futures induces price speculation and destabilises the underlying asset market. By using a modified univariate conditional volatility model to examine the major indexes in the USA, this paper finds that the average return on stocks declined following the introduction of trading in E-mini futures contracts. Both in the short run and the long run, the unconditional volatility increases in the three spot indices following the introduction of E-mini futures contracts. In general, our results show that the introduction of mini-sized electronically traded index futures increases the volatility of the underlying asset.

Keywords: electronically traded markets; e-mini futures contracts; price speculation; price destabilisation; index futures; electronic trading; underlying asset market.

DOI: 10.1504/IJSTM.2005.007515

International Journal of Services Technology and Management, 2005 Vol.6 No.6, pp.609 - 626

Published online: 31 Jul 2005 *

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