Since 2014
How Have Contracts for Difference Affected Irish Equity Market Volatility?
The Economic and Social Review
View Archive Info| Field | Value | |
| Title |
How Have Contracts for Difference Affected Irish Equity Market Volatility?
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| Creator |
Corbet, Shaen
Twomey, Cian |
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| Subject |
equity markets; Contracts for Difference; volatility; Ireland
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| Description |
Contracts for Difference (CFDs) have existed for less than twenty years and the market has grown significantly up to the period before the recent international crises. This paper presents an analysis of how CFDs have affected equity market volatility in Ireland. EGARCH models are used to uncover volatility changes in the periods before and after the introduction of the new trading product in Ireland. We find that CFDs appear to have lowered asset-specific volatility across the majority of equities traded on the Irish Stock Exchange. These findings do not correspond to the expected volatility increase associated with leveraged products that are closely associated with high frequency trading. Our empirical analysis suggests that CFDs are having an alternative volatility reducing effect through the presence of bid and ask price “overhangs” that are generated through the hedging practices of CFD brokers. A fully worked example of the development of an “overhang” is provided.
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| Publisher |
The Economic and Social Review
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| Contributor |
—
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| Date |
2014-12-11
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion — |
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| Format |
application/pdf
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| Identifier |
http://www.esr.ie/article/view/230
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| Source |
The Economic and Social Review; Vol 45, No 4, Winter (2014); 559–577
0012-9984 |
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| Language |
eng
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| Relation |
http://www.esr.ie/article/view/230/99
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| Rights |
Copyright (c) 2015 The Economic and Social Review
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