This study attempts to investigate the economic motivation of high-frequency traders (HFTs) to use single-stock futures (SSFs) contracts. Using a novel intraday data set from the largest exchange of SSFs, with identifiers for algorithmic traders, we attempt to disentangle the hedging and information-based trading motivations of HFTs in using this market. We find that hedging is the primary motivation for HFTs to use the futures market. We also find that the regulatory change of upward revision of the minimum contract size in the derivative market made it more difficult for the HFTs to use the futures to hedge their spot market exposure effectively.
Co-author (s): Prof. Anirban Banerjee, Faculty at IIM Ahmedabad
Journal: The Journal of Futures Markets
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