Doctor of Philosophy(PhD) / This dissertation examines the implicit cost of trading in money and futures markets. The research provides empirical evidence on several issues of significance to the growing number of institutional investors in these markets. I address four unique research questions with scarce or conflicting prior research findings. The empirical evidence presented in this dissertation can be used by researchers, investors, and regulators to understand and manage the cost of trading in money and futures markets. The first issue examined in this dissertation is the price impact of block trades in futures markets. The study examines 14 stock index futures contracts in 11 different international markets and finds that on balance, part of the initial price movement associated with a block trade is temporary. This suggests block trades in futures markets incur a liquidity premium. The study also finds strong evidence that large buyer- and seller-initiated trades have permanent effects on prices, implying they convey information. The study concludes, similar to research based on equity markets, that traders in futures markets are informed. The second issue examined is an inconsistency in the literature regarding institutional transactions in futures markets. One strand of the literature documents that single trades in futures markets contain information, while another strand finds trade packages in futures markets do not contain information. The second study in this dissertation controls for methodological and sample differences in examining the price impact of individual trades and trade packages, and finds little evidence that transactions in futures markets contain information. The third issue examined in this dissertation is the anomalous negative relation between execution costs and trade size in opaque markets. Prior literature attributes this relation to information asymmetry and broker-client relationships; however, previous empirical studies are unable to analyse these contributing factors individually. The study addresses this issue by empirically examining the effect of each factor on execution costs in Australian money markets. Results imply that a trader’s ex ante price information and the relationship a trader has with their broker are both significant determinants of a trader’s execution costs in an opaque market; however, traders who establish a strong relationship with their broker will achieve a greater reduction in execution costs than traders with ex ante price information. The study also finds evidence that trade size has little explanatory power after controlling for a trader’s ex ante price information and broker-client relationships. There is a scarcity of empirical research examining the carbon market – a new and rapidly growing financial market developed to support the trading of carbon emissions. The fourth issue examined in this dissertation is the cost of trading in the largest and most liquid carbon market: the European carbon futures market. Results from prior studies of transaction costs are not necessarily applicable to carbon futures, given the unique features of carbon futures contracts and the immaturity of the carbon market. This study is of interest as it represents the first empirical analysis of liquidity and transaction costs in the carbon futures market. Results from the study imply a substantial increase in liquidity and subsequent reduction in transaction costs as carbon markets mature through time. Unlike traditional futures contracts, where liquidity clusters in quarterly expiry month contracts (March, June, September, December), liquidity in the carbon futures market is concentrated in December expiry month contracts to coincide with annual emissions audits. Further, the study also provides evidence of information asymmetry in carbon futures markets and a permanent price adjustment following medium and large trades.
| Identifer | oai:union.ndltd.org:ADTP/283785 |
| Date | January 2009 |
| Creators | Kruk, Jennifer |
| Publisher | University of Sydney., Discipline of Finance, |
| Source Sets | Australiasian Digital Theses Program |
| Detected Language | English |
| Rights | The author retains copyright of this thesis., http://www.library.usyd.edu.au/copyright.html |
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