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Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin?

Philipp Adämmer, Martin T. Bohl and Christian Gross ()

No 3915, CQE Working Papers from Center for Quantitative Economics (CQE), University of Muenster

Abstract: It is still an unanswered question how much trading activity is needed for efficient price discovery in commodity futures markets. For this purpose, we investigate the price discovery process of two thinly traded agricultural futures contracts traded at the European Exchange in Frankfurt. Our empirical results show that the trading volume threshold which is necessary to facilitate efficient price discovery is very low. As our findings are based on constant and time-varying vector error correction models, we also show that neglecting time-variation in the parameters can lead to misleading results, especially for thinly traded markets.

Keywords: Thinly Traded Markets; Price Discovery; Trading Volume Threshold; Information Shares; Kalman Filter (search for similar items in EconPapers)
JEL-codes: G12 G13 Q14 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2015-04
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (4) Track citations by RSS feed

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https://www.wiwi.uni-muenster.de/cqe/sites/cqe/fil ... r/CQE_WP_39_2015.pdf Version of April 2015 (application/pdf)

Related works:
Journal Article: Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin? (2016) Downloads
Working Paper: Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin? (2015) Downloads
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