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Type: Journal article
Title: How much do locals contribute to the price discovery process?
Author: Fong, K.
Zurbrugg, R.
Citation: Journal of Empirical Finance, 2003; 10(3):305-320
Publisher: Elsevier BV, North Holland
Issue Date: 2003
ISSN: 0927-5398
Statement of
Kingsley Fong and Ralf Zurbruegg
Abstract: This paper studies the relative contribution of floor brokers and local floor members (locals) towards the price discovery process. Using detailed Share Price Index (SPI) futures contract data from the Sydney Futures Exchange (SFE), we construct 1- and 5-min series of volume weighted average prices for both floor brokers and locals. Estimates of Gonzalo and Granger [J. Bus. Econ. Stat. 13 (1995) 27] plus Hasbrouck [J. Finance 50 (1995) 1175] information shares reveal that trades initiated by locals account for approximately one-third of all price discovery within the market. Also, it is found that the locals' share of price discovery is higher than their share of trading activity. However, when there is high volatility or when observation intervals are lengthened, locals' contribution to price discovery declines. We conclude that although floor brokers are the main contributors, locals do play a significant role within the price discovery process.
Keywords: Local-broker trading; Cointegration; Price discovery
Description: Copyright © 2002 Elsevier Science B.V.
RMID: 0020031820
DOI: 10.1016/S0927-5398(02)00053-1
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Appears in Collections:Business School publications

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