We would like to thank participants in the seminars held at Capital Markets Cooperative Research Centre; Deakin University; Florida International University; Monash University; Oxford University; The University of Sydney; The University of Technology, Sydney; and the Financial Management Association International (FMA) Annual Conference 2011. We especially thank the Australian Securities Exchange for providing the data for this study. Any errors or omissions are the responsibility of the authors alone.
Does International Order Flow Contribute to Price Discovery in Futures Markets?
Article first published online: 14 AUG 2012
© 2012 Wiley Periodicals, Inc.
Journal of Futures Markets
Volume 32, Issue 12, pages 1124–1143, December 2012
How to Cite
Frino, A., Webb, R. I. and Zheng, H. (2012), Does International Order Flow Contribute to Price Discovery in Futures Markets?. J. Fut. Mark., 32: 1124–1143. doi: 10.1002/fut.21579
- Issue published online: 21 SEP 2012
- Article first published online: 14 AUG 2012
- Manuscript Accepted: 28 JUN 2012
- Manuscript Received: 19 JUN 2012
This study examines whether order flow originating from overseas contributes to price discovery in domestic futures markets. This issue is examined using a unique dataset for stock index futures traded on the Australian Securities Exchange that identifies the geographic location of computer servers on which orders are placed. We find that (i) transactions originating from overseas servers have a significant impact on the price volatility of stock index futures; (ii) trades initiated from international servers also have a permanent impact on price; and (iii) price movements caused by trades initiated from overseas servers lead those on domestic servers and make a greater contribution to price discovery. Our results confirm that international order flow is important in the price discovery process in domestic markets.