Trading protocols and price discovery: Implicit transaction costs in Indian single stock futures

Edward Curran, Jack Hunt and Vito Mollica

Journal of Futures Markets, 2020, vol. 40, issue 11, 1793-1806

Abstract: We show how trading protocols impede the price discovery process in single stock futures as implicit trade costs outweigh explicit costs. Despite the trade volume dominance, trade costs advantage and leverage efficiency in futures markets, single stock futures account for only 35% of the price discovery vis‐á‐vis the spot market. Futures market's informational efficiency is adversely affected by market frictions in the form of marketwide position limits, minimum contract values, and margin requirements.

Date: 2020
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