Slippage in Futures Markets: Evidence from the Sydney Futures Exchange

Abstract

This paper examines the market-impact cost of trades executed in futures markets, which is commonly referred to as Using a unique dataset provided by the Sydney Futures Exchange, this paper documents that slippage costs incurred in executing packages of trades in stock index and interest rate futures markets are significantly smaller than market-impact costs documented previously for equity markets. Furthermore, in contrast to research based on equity markets, there is little evidence that trade packages executed in futures markets convey information, or that purchases and sales behave differently. In fact, the evidence presented in this paper implies that slippage in futures markets is entirely a liquidity cost, and symmetrical for purchases and sales. This is consistent with previous work which conjectures that there is an absence of private information in stock index and interest rate futures markets. Finally, analogously to previous research, there is some evidence that trade size and the identity of traders are determinants of slippage, however these variables explain less than 10 percent of the total variation in slippage.