Effects of Futures Trading on the Spot Market Bid-Ask Spread

Silvia Gerber and Peter Simmons

The Manchester School of Economic & Social Studies, 1998, vol. 66, issue 1, pages 87-99

Abstract: This paper analyzes how the presence of a futures market gives risk averse dealers in the spot asset opportunities for arbitrage that reduces the spot market bid-ask spread through reducing the dealers risk exposure. In particular, if the spot and futures risks are perfectly correlated then the spot bid-ask spread is zero in equilibrium and all spot dealer risk can be diversified away. The paper also analyzes the equilibrium futures price in this two market scenario. Copyright 1998 by Blackwell Publishers Ltd and The Victoria University of Manchester

Date: 1998

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bla:manch2:v:66:y:1998:i:1:p:87-99

Access Statistics for this article

More articles in The Manchester School of Economic & Social Studies from Blackwell Publishing
Series data maintained by Christopher F. Baum ().