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Research: Timing Influences Ease of Futures Trading

04 September 2009
University of Manitoba
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GLOBAL - Research conducted by the Universities of Manitoba and Illinois suggest timing plays a key role in influencing the ease with which lean hog and live cattle futures contracts are bought or sold on the Chicago Mercantile Exchange, writes Bruce Cochrane.

The Universities of Manitoba and Illinois have completed a study in which lean hog and live cattle futures contracts traded on the Chicago Mercantile exchange from 2005 to 2008 were analyzed to assess the determinants of market liquidity, or the ease with which futures contracts are traded.

Scientists tracked volume and measured price volatility looking at seasonality, transactions according to day of the week, expiration of contracts and the influence of electronic trading.

Dr Julieta Frank, an assistant professor with University of Manitoba's Faculty of Agricultural and Food Sciences, says volume and volatility were the key factors influencing changes over time in liquidity.

Dr Julieta Frank-University of Manitoba

The main message probably would be to use this information to come up with marketing strategies.

Basically this information could be used to see in which periods it's more likely that it would be easier to buy or sell contracts and, when I mean easier, that means less costly.

It's particularly important for decision makers who have to actually come up with marketing strategies and that should help them reduce marketing costs when they operate in the futures markets.


Dr Frank notes the day of the week when transactions were performed, especially for cattle markets, played a role in liquidity with Mondays and Tuesdays being the days when liquidity was most affected.

She says the proportion of electronic trading, which increased over the latter part of the study, also played a role in determining liquidity.

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