The Third Dimension of Financialization: Electronification, Intraday Institutional Trading, and Commodity Market Quality

60 Pages Posted: 10 Nov 2017 Last revised: 19 Oct 2023

See all articles by Vikas Raman

Vikas Raman

Lancaster University - Department of Accounting and Finance

Michel A. Robe

University of Richmond - E. Claiborne Robins School of Business

Pradeep K. Yadav

University of Oklahoma Price College of Business

Date Written: October 19, 2023

Abstract

We provide the first detailed empirical evidence on the financialization of intraday trading activity in the world’s largest commodity market, and show that this development was associated with first-order improvements in market quality. We use a unique U.S. regulatory dataset to show that the electronification of crude oil futures trading brought about a huge growth in intraday activity by institutional financial traders. We link this increased activity to statistically and economically significant improvements in bid-ask spreads, market depth, and short-term price efficiency. Our inferences are robust to concomitant changes in the nature and volume of customer trading. Finally, we document notable differences between the contributions of high-frequency traders (HFTs) vs. other intraday institutional financial traders to different market quality attributes.

Keywords: Financialization of commodities, Institutional trading, Intraday activity, Market Quality, HFT.

JEL Classification: G10, G23, Q02, G14, G12, G13

Suggested Citation

Raman, Vikas and Robe, Michel A. and Yadav, Pradeep K., The Third Dimension of Financialization: Electronification, Intraday Institutional Trading, and Commodity Market Quality (October 19, 2023). Available at SSRN: https://ssrn.com/abstract=3068248 or http://dx.doi.org/10.2139/ssrn.3068248

Vikas Raman

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom

Michel A. Robe (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

Richmond, VA 23173
United States

Pradeep K. Yadav

University of Oklahoma Price College of Business ( email )

307 W.Brooks, Room 3270 Division of Finance
Norman, OK 73019
United States
4053255591 (Phone)
4053255491 (Fax)

HOME PAGE: http://www.ou.edu/price/finance/faculty/pradeep_yadav.html

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