Dr. P.K. Jain published in the Journal of Trading

For release:  June 2, 2017

Dr. Pankaj (P.K.) Jain, interim chair of the department of Finance, Insurance, and Real Estate, was recently published in the Journal of Trading for his paper entitled, "Price Discovery and Liquidity Characteristics for U.S. Electronic Futures and ETF Markets." Dr. Jain co-authored the paper with A. Senol Oztekin, Hepa Investment Co. Istanbul, Turkey; Suchismita Mishra, Florida International University; Robert T. Daigler, Florida International University; Sascha Strobl, Dongbei University of Finance and Economics in Dalian, Liaoning, China; and Richard D. Holowczak, City University of New York.

Using high-frequency datasets, the authors examine price discovery and its determinants for equivalent instruments across futures markets, electronically traded exchange-traded funds (ETFs), and spot markets. They compare futures to ETFs—leveraged and unleveraged—for stock indexes, using both a normal period and the 2008 financial crisis. The authors examined the determinants and characteristics of the price discovery process using a sequential trading model for the price impact of large trades. They found that most price discovery occurs in the more liquid and highly leveraged futures market. Although liquidity declined in all markets during the financial crisis, the relative contribution of ETFs to price discovery increased. They also found that the information leadership shares of futures and ETFs depend on the ratio of the quoted percentage spread between futures and ETFs and the aggregate volatility occurring in these markets.

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