The effects of universal futures on opening and closing returns

Abstract

Purpose

In 2001, Euronext‐Liffe introduced single security futures contracts for the first time. The purpose of this paper is to examine the impact that these single security futures had on the volatility of the underlying stocks.

Design/methodology/approach

The Inclan and Tiao algorithm was used to show that the volatility of underlying securities did not change after universal futures were introduced.

Findings

It was found that in the aftermath of the introduction of universal futures the volatility of the underlying securities increases. Increased volatility is not apparent in the control sample. This suggests that single security futures did have some impact on the volatility of the underlying securities.

Originality/value

Despite the huge literature that has examined the effects of a futures listing on the volatility of underlying stock returns, little consensus has emerged. This paper adds to the dialogue by focusing on the effects of a single security futures contract rather than concentrating on the effects of index futures contracts.

Citation

Chelley‐Steeley, P.L. (2008), "The effects of universal futures on opening and closing returns", Studies in Economics and Finance, Vol. 25 No. 4, pp. 233-252. https://doi.org/10.1108/10867370810918137