Quantifying the Effects of the Inclusion and Segregation of Contracts for Difference in Australian Equity Markets


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Authors

  • Shaen Corbet DCU Business School (DCUBS), Dublin City University (DCU), Dublin 9, Ireland.
  • Cian Twomey J.E. Cairnes School of Business and Economics, National University of Ireland, Galway (NUIG), Galway, Ireland.

Abstract

This study examines the effects that Contracts for Difference (CFDs) have had on the Australian equity market, either as an accelerant for mispricing, or as a source of increased market functionality through the addition of a new tradable product and increased liquidity. The Australian Securities Exchange (ASX) made the decision to segregate CFDs to a separate ring-fenced exchange in November 2007. This study uses EGARCH techniques to test for the effects of CFDs on return volatility at the time of CFD inclusion and segregation in Australian equity markets at the index and equity-specific level. A fully worked explanation and example of a CFD-influenced ‘overhang’ is also provided. The results provide evidence that cannot reject the presence of ‘overhangs’ in Australian equity markets. Keywords: Contracts for Difference; EGARCH; equity markets; volatility. JEL Classifications: G12; G15

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Author Biographies

Shaen Corbet, DCU Business School (DCUBS), Dublin City University (DCU), Dublin 9, Ireland.

Lecturer (Finance),DCU Business School (DCUBS), Dublin City University (DCU),Dublin 9,Ireland. 

Cian Twomey, J.E. Cairnes School of Business and Economics, National University of Ireland, Galway (NUIG), Galway, Ireland.

Vice Dean of Internationalisation,Lecturer (Finance),J.E. Cairnes School of Business and Economics, National University of Ireland, Galway (NUIG),Galway,Ireland.

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Published

2014-03-07

How to Cite

Corbet, S., & Twomey, C. (2014). Quantifying the Effects of the Inclusion and Segregation of Contracts for Difference in Australian Equity Markets. International Journal of Economics and Financial Issues, 4(2), 411–426. Retrieved from https://econjournals.com/index.php/ijefi/article/view/733

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