Futures trading increases market volatility and liquidity, challenging previous assumptions.
The study looked at how futures trading affects the stock market. They found that when futures are traded, bid-ask spreads decrease not because of less information asymmetry, but likely due to lower inventory costs. Volatility increases when futures are traded, along with higher trading volume, suggesting big investors are influencing prices. Contrary to previous studies, this research suggests that market quality may not improve with futures trading.