Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

Sunil Poshakwale; Jude W. Taunson; Anandadeep Mandal; Michael Theobald

doi:10.1007/s11156-018-0777-7

Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

Sunil Poshakwale, Jude W. Taunson, Anandadeep Mandal, Michael Theobald

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Abstract

We provide robust evidence of the impact on spot market liquidity and the pricing efficiency of FBM-FKLI index futures following the introduction of lower tick sizes for the stocks listed in the Bursa Malaysia. Our findings show a significant increase in unexpected trading volume and the speed of mean reversion of the futures mispricing. We find that the increase in the unexpected trading volume of the underlying stocks helps in reducing inter-market price discrepancies. The findings offer new evidence that lowering of tick sizes improves pricing efficiency in the Malaysian futures market.

Original language	English
Number of pages	29
Journal	Review of Quantitative Finance and Accounting
Early online date	16 Nov 2018
DOIs	https://doi.org/10.1007/s11156-018-0777-7
Publication status	E-pub ahead of print - 16 Nov 2018

Keywords

Index futures
speed of adjustment
Market microstructure
emerging markets
Mean reversion

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Checked for eligibility: 18/12/2018 This is a post-peer-review, pre-copyedit version of an article published in Review of Quantitative Finance and Accounting. The final authenticated version is available online at: http://dx.doi.org/10.1007/s11156-018-0777-7.
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Cite this

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Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

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Keywords

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