Narrow Results

Trading in commodity derivatives on exchange platforms is an instrument to achieve price discovery and better price-risk management besides helping the macroeconomy with better resource allocation. In the 2008–2009 budget, the Indian government proposed to impose a commodity transaction tax (CTT) amounting to 0.017% of trading value. In this context, we examine the relationship between trading activity, volatility and transaction cost for five most traded commodities in India. Results suggest that there exists a negative relationship between transaction cost and liquidity and a positive relationship between transaction cost and volatility. Further, the results of structural model support the results of VAR analysis. Therefore, if the government imposes CTT, it would lead to higher volatility and lower trading activity affecting market efficiency and liquidity.

Price clustering in financial markets has been identified by previous studies. However, few studies have examined the phenomenon in the futures market. This paper presents price clustering for the Nikkei 225 stock index futures contract on the SIMEX. An extremely low percentage of odd-tick trades appears at the opening for the first trading session, while moderately low percentage occurs at the opening and the closing for the second trading session. GARCH estimation results document that the degree of price clustering increases in the periods with high volatility, bid-ask spreads, and transaction frequency. Price clustering tends to occur on the last trading day which the futures contract is to be presented. Generally, the results support the negotiation hypothesis of price clustering proposed by Harris (1991).

The electronic limit order book has transformed securities markets. Advantages of speed, simplicity, scalability, and low costs drive the rapid adoption of this mechanism to trade equities, bonds, foreign exchange, and derivatives worldwide. But limit order book systems depend primarily on public limit orders to provide liquidity, raising natural questions regarding the resiliency of the mechanism under stress. This paper provides an analysis of the stochastic dynamics of liquidity and its relation to volatility shocks using data from a futures market. Aggregate market liquidity exhibits considerable variation, and is inversely related to volatility, as predicted by our model. However, liquidity shocks dissipate quickly, indicating a high degree of market resiliency. This fact has important practical implications, particularly as regards to institutional trading, and market protocols. We explore these practical issues in detail.

With an aversion to losses, there are some traders in financial markets who are not overly aggressive in bidding too high and some traders who are not overly aggressive in selling at too low of a price. This paper shows in an evolutionary model of natural selection within the context of a futures market that as long as these conservative traders have some positive probability (however small) of making an accurate prediction of the spot price, their presence ensures the convergence to an efficient market. This result is distinct from previous related research. Furthermore, although such conservative traders are not aggressive nor do they always participate in the market, in the long run they not only survive but eventually increase their share of aggregate wealth.

This article sketches an ethics of (financial) speculation in futures markets. (1) It identifies an intentionalistic fallacy prevalent in moral criticisms of speculation in general and of financial speculation in particular. (2) It scrutinizes the degree to which the recent debate on financial speculation with agricultural commodities follows the general pattern of moral criticism and its intentionalistic fallacy. (3) It then provides a theoretical and empirical in-depth analysis of long-only index funds' engagement in futures markets and concludes that moral criticisms which put them in the pillory as “hungermakers” are unjust(ified). This proves that ethics, understood as a theory of morality, can criticize moral criticisms of financial speculation on moral grounds. (4) Finally, this article discusses the option of interdisciplinary cooperation between ethics and economics.