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Does International Order Flow Contribute to Price Discovery in Futures Markets?


  • 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.

Correspondence author, Discipline of Finance, Business School, The University of Sydney, NSW 2006, Australia. Tel: (612) 9351 3915, Fax: (612) 9351 6461, e-mail:


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.

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