Volumes and Volatilities: A Study on the Transition from Open-outcry to Electronic Trading in CME Live Cattle Futures

Faculty Mentor(s)

Dr. John Lunn, Hope College

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The Chicago Mercantile Exchange is experiencing a transition from open-outcry trading in trading pits, to electronic trading in trading platforms (Globex). This paper concludes that as Globex gains market share, its liquidity costs and higher volatility will be reflected throughout the entire market. Regression results, statistics, and correlations indicate that the days in which Globex has higher than normal daily volumes, the volatilities of both trading platforms will increase. From these relationships I can hypothesize that as the transition from open-outcry trading to electronic trading continues, volatilities in both trading platforms will increase until all trading is executed through Globex.

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