Interdealer inference and price discovery

Tzu‐man Huang and Peter Locke

Journal of Futures Markets, 2008, vol. 28, issue 2, 131-154

Abstract: Futures floor dealers are investigated in terms of their joint product of price discovery. A vector error correction model is estimated using floor trader proprietary prices, examining the resulting information shares and common factor components. More active dealers are significant price leaders, with only one fifth of the traders responsible for a significantly higher degree of price discovery. Price leadership is more significant in both volatile and falling markets, when information is perhaps more valuable. It is also found that the most active floor traders generally trade at the same time and in the same direction. © 2008 Wiley Periodicals, Inc. Jrl Fut Mark 28: 131–154, 2008

Date: 2008
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