Market Liquidity Behaviour in Futures Markets: Empirical Evidence

ABID Fathi () and Lotfi TRABELSI ()
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ABID Fathi: Professor of Finance University of Sfax: UR: MO.DE.S.FI Faculty of Business and Economics of Sfax, TUNISIA
Lotfi TRABELSI: Assistant professor of finance University of Sfax: UR: MO.DE.S.FI IHEC-Sfax

Asian Economic and Financial Review, 2012, vol. 2, issue 1, pages 192-206

Abstract: In this study, we examine the relations between the three keys variables of liquidity such as trading volume, bid-ask spread, and intraday price volatility. Hausman’s (1978) tests of specification confirmed that trading volume, bid-ask spread and intraday price volatility are jointly determined. Our study, leaded with a different approach to estimate the three parameters in a three-equation simultaneous structural model, confirm Hausman’s (1978) conclusions. Empirical analysis, based on eight financial futures contracts, the most actively traded futures contracts in the Chicago Board of Trade (CBT) and the Chicago Mercantile Exchange (CME) markets, use the generalized method of moments (GMM) procedure. Empirical results, supporting theoretical developments, indicate the existence of a simultaneous relationship between these three variables of financial markets liquidity.

Keywords: Market Liquidity; Trading Volume; Bid-Ask Spread; Intraday Price Volatility; Index Futures Markets; Generalized Method of Moments. (search for similar items in EconPapers)
Date: 2012
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