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Review of Quantitative Finance and Accounting

, Volume 53, Issue 4, pp 1135–1163 | Cite as

Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market

  • Sunil S. Poshakwale
  • Jude W. Taunson
  • Anandadeep MandalEmail author
  • Michael Theobald
Original Research
  • 177 Downloads

Abstract

We provide robust evidence of the impact on spot market liquidity and the pricing efficiency of FBM-FKLI index futures following the introduction of lower tick sizes for the stocks listed in the Bursa Malaysia. Our findings show a significant increase in unexpected trading volume and the speed of mean reversion of the futures mispricing. We find that the increase in the unexpected trading volume of the underlying stocks helps in reducing inter-market price discrepancies. The findings offer new evidence that lowering of tick sizes improves pricing efficiency in the Malaysian futures market.

Keywords

Index futures Speed of adjustment Mean reversion Market microstructure Emerging markets 

JEL Classification

E13 E14 

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Centre for Research in FinanceCranfield School of Management, Cranfield UniversityCranfieldUK
  2. 2.Universiti Malaysia SabahKota KinabaluMalaysia
  3. 3.University of BirminghamBirminghamUK
  4. 4.Emeritus ProfessorUniversity of BirminghamBirminghamUK

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