Note: [] Address for correspondence: Dr. Lorne N. Switzer, Associate Dean, Research and Van Berkom Endowed Chair, John Molson School of Business, Concordia University, 1455 De Maisonneuve Blvd. W., Montreal, QC, Canada H3G 1M8. Tel.: +1 514 848 2424, ×2960; Fax: +1 514 481 4561; E-mail: [email protected].
Abstract: This study examines the effects of the introduction of screen trading on futures markets pricing efficiency. Using differences between the observed futures price and the theoretical futures price based on the cost of carry model, we found that the positive mispricing, as well as conditional volatility of mispricing, was reduced when screen trading was introduced for the SXF Index Futures Contract. In addition, while dividend yield and time-to-maturity biases remained, screen trading was shown to mitigate the extent of pricing errors that prevailed, and reduced the effects of dividend yield and time-to-maturity biases found for these contracts.
Keywords: Futures market efficiency, screen trading, cost of carry
