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The Informativeness of Trades and Quotes in the FTSE 100 Index Futures Market

Authors

  • Bart Frijns,

    Corresponding author
    1. Bart Frijns is a Professor of Finance at Auckland University of Technology, Auckland, New Zealand
    • Correspondence author, Department of Finance, Auckland University of Technology, Private Bag 92006, 1142 Auckland, New Zealand. Tel: +64-9-921-9999 ext. 5706, Fax: +64-9-921-9940, e-mail: bfrijns@aut.ac.nz

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  • Yiuman Tse

    1. Yiuman Tse is Peter G. Schick Professor of Finance at University of Missouri–St. Louis, St. Louis, Missouri
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  • We are grateful to an anonymous referee, Bob Webb (editor), Steven Li (discussant), and the participants at the International Conference on Futures and Other Derivative Markets in Beijing, China for valuable comments.

Abstract

This study examines the informativeness of trades and quotes in the FTSE 100 index futures market. Using a tick time model, we decompose the innovation in the efficient price into a trade-induced and a quote-induced part. For the extensive time period from 2001 to 2011, we find that trades are highly informative, explaining about 80% of the innovation in the efficient price. Large trades are more informative than smaller trades. We observe a noticeable upward trend in the contribution of trades, but also notice large drops in price informativeness around the recent global financial crisis and the European debt crisis. These drops could be attributed to noise trading during volatile periods. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:105–126, 2015

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