Price discovery in high and low volatility periods: open outcry versus electronic trading

Abstract Bund futures contracts are traded in almost an identical design on the London International Financial Futures Exchange (LIFFE) and the Deutsche Terminborse (DTB). LIFFE uses a floor trading system, while DTB employs an electronic screen based trading system. In volatile periods, it is shown that the share in volume of LIFFE decreases but the share in the price discovery process increases. In relatively quiet periods, DTB is more efficient although it has a smaller volume share. The shift in the volume share can be explained by arbitrage, while the shift in efficiency can be attributed to the differences between floor trading and electronic trading.

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