Comparison of Liquidity Costs between the Kansas City and Chicago Wheat Futures Contracts

• Main Authors: Sarahelen R. Thompson, James S. Eales, David Seibold
• Format: Article
• Language: English
• Published: Western Agricultural Economics Association 1993-12-01
• Series: Journal of Agricultural and Resource Economics
• Subjects: bid-ask spread; futures markets; liquidity; market makers; thin markets; transactions costs
• Online Access: https://ageconsearch.umn.edu/record/30965

The objectives of this study were to: (a) quantify differences in liquidity costs between Kansas City and Chicago wheat futures contracts, and (b) identify the factors which influence liquidity in these two markets. Regression results suggest that there are significant differences in liquidity costs between Chicago and Kansas City which are in part due to the lower trading volume at Kansas City. However, there appears to be a significantly higher cost of doing business at Kansas City which is independent of trading volume. The implications of these findings to traders is that transacting is more expensive in Kansas City than in Chicago.