Using both daily and intraday data, this paper investigates the impact of different futures trading mechanisms employed by TSE/OSE (automated system with Saitori matching) in Japan and SIMEX (open outcry) in Singapore. In order to examine the relative performance, we compare interday return volatility and intraday price transmission of Nikkei/JGB futures between Japan and Singapore. Regarding Nikkei futures, we find no significant difference in the performance measurements between OSE and SIMEX. We find both OSE and SIMEX have significant higher variances and negative first-order autocorrelation at the open than at the close. We also find Granger causality in both directions of intermarket price transmission between OSE and SIMEX. Regarding JGB futures, empirical results are different between TSE and SIMEX. JGB futures on SIMEX has a lower volatility at the open and first-order autocorrelation at the open is not significant. In addition, we find unidirectional lead from Japan to Singapore in JGB futures. In conclusion, since Japanese trading system does not reduce return volatility and causes delay in the open, the benefit of Saitori matching is questionable. On the other hand, we find weak evidence that the Japanese trading system is more efficient in price reporting. There is no conclusive evidence that either SIMEX open outcry or TSE/OSE Saitori matching dominates the price discovery process.
Review of Quantitative Finance and Accounting – Springer Journals
Published: Sep 29, 2004
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