Peter R. Locke

Standard & Poor's 500 Index Futures Volatility and Price Changes around the New York Stock Exchange Close

We examine the effects of the closing of the New York Stock Exchange (NYSE) on volatility and price changes in the Standard & Poors (S&P) futures market, which trades for 15 more minutes each day. When the NYSE closes, volatility in the futures market drops significantly, only to increase at the close of the futures market, thus exhibiting a U-shaped pattern after the NYSE closes. We also find that Fridays close is the period of highest volatility in the futures market. Also, in the final minutes on Friday, the S&P futures price anticipates the well-known weekend effect found in equities. Copyright 1995 by University of Chicago Press.

MARKET MAKER COMPETITION ON FUTURES EXCHANGES

This study examines competition among the market makers in six futures pits. We first present a heterogeneous market maker model, allowing traders to dger according to their risk tolerance and/or capitalization. Those who are more risk tolerant or more highly capitalized capture greater volume by quoting tighter bid-ask spreads. We then look at the concentration of personal trading in actual futures pits, andfind it to be moderately concentrated: On a given day, an average of 30% to 60% of personal trading is conducted by the four largest traders in the pit. Concentration falls as volume rises, which is consistent with a prediction of the model that as volume rises, more risk-averse or lower-capitalized traders are able to participate in trading. Finally, we examine the relationship between personal trading volume and bid-ask spreads. Overall, the studyfinds only mild wi

Price Discovery in Futures and Options Markets

We evaluate price discovery in the natural gas futures and futures options markets using a transaction based approach. By sampling market maker prices, we allow for a distinction between buy and sell prices, both directly from the futures market, and implied from the options market. Information shares are compared between futures and options markets as well as within the options market. Given the common architecture of the two markets, we find little price information generated in the options market. Within the options market, the highly levered out-of-the-money options offer less price discovery than other options. We attribute this to the higher transactions costs of out-of-the-money options.

Interdealer Inference and Price Discovery

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.