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The relative importance of information, inventory and price clustering for STIR futures pre- and post-EMU

By Frank McGroarty, Stephen H. Thomas and Owain ap Gwilym


This paper applies an established bid-ask spread decomposition model to short-term interest rate (STIR) futures to assess the impact of both the migration from floor to electronic trading and European Monetary Union (EMU). Additionally, the paper presents and tests a modified decomposition model which is specifically adapted to the features of order-driven markets. The latter model provides much improved performance. Price clustering is introduced as a new explanatory factor within this framework and is shown to be vitally important in understanding the bid-ask spread and price determination

Topics: HD61
Publisher: University of Southampton
Year: 2005
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Provided by: e-Prints Soton

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