Abstract
In the futures market, the volumes of second-nearby contacts are often less than the volume of nearby contacts, but there is high positive correlation of price changes. Thus, the purpose on buyer-initiated and seller-initiated of market microstructure to explain futures spread, we guess there are time series or nearby contracts which lead to second-nearby contracts. To discuss the percentage of the informed trading in the market and the situation of market friction, we usually use buyer-initiated and seller-initiated to analyze probability of informed trading and market friction, and also estimate realized volatility or trading behavior for different traders. In the past, we use tick rule and quote rule to determine buyer-initiated and seller-initiated. Lee and Ready(1991) and Ellis, Michaely and O’Hara(2000) combine two rules and increase the classification success rate. By Empirical simulation, we decide to use Lee and Ready(1991) to determine buyer-initiated and seller-initiated, and we use the method to arrange tick data of futures spread research. First, we use buyer-initiated and seller-initiated series of nearby and second-nearby contracts to explain price change. Huang and Chou(2007)combine buyer-initiated and seller-initiated to explain order imbalance(OI) series. Therefore, we also use this method to the absolute value of estimation of futures spread. Besides, we try to use buyer-initiated and seller-initiated to interpret to futures spread change between these two methods.