Do Individual Investors on the Futures Market Induce Higher Spot Market Volatility?

Goodfellow, Christiane; Salm, Christian A.

doi:10.2139/ssrn.1148073

Cited by 3 publications

(2 citation statements)

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“…Spyrou (2005) and Alexakis (2007) find that futures trading at Athens Stock Exchange have assisted on incorporation of information into spot prices more quickly but it has no deterministic impact on the volatility of underlying spot market. Goodfellow and Salm (2008) suggest that the impact of the introduction of derivatives trading in Poland had a stabilising effect on the stock market.…”

Section: Introductionmentioning

confidence: 99%

Impact of derivatives trading on spot market volatility: an empirical study

Tripathy

Rao

Kanagaraj

2009

IJADS

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This paper investigates the impact of introduction of derivative instruments and leverage and asymmetric effect on spot market volatility (Nifty) in India during the period October 1995 to December 2006 by using GARCH, EGARCH, TARCH and component ARCH model. The results suggest towards a decline in spot market volatility and market efficiency improved after introduction of index futures, stock futures, stock options and index options on the spot market due to increase impact of recent news. This study also finds evidence of leverage and asymmetric effect on spot market where the conditional variance is an asymmetric function of past innovation, rising proportionately more during market declines. It is also observed that the asymmetric GARCH models provide better fit than the symmetric GARCH model. Thus to predict stock market volatility, one should use the asymmetric model which can capture the so-called leverage effect observed in our study.

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Section: Introductionmentioning

confidence: 99%

Impact of derivatives trading on spot market volatility: an empirical study

Tripathy

Rao

Kanagaraj

2009

IJADS

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“…The analysis reveals that futures trading has reduced the volatility of the underlying spot market and enhances the market efficiency. Similarly, other studies by Thenmozhi, 2002;Nath, 2003;Raju andKarande, 2003 andVipul (2006) for India, Alexakis, 2007;Drimbetas, Sariannidis andPorfiris, 2007 andKaranthanassis andSogiakas (2007) for Greece and Goodfellow and Salm (2008) for Poland found that the onset of futures trading had decreased the volatility of underlying spot market.…”

Section: Review Of Literaturementioning

confidence: 53%

Stock Futures Trading Information and Spot Price Volatility: Evidence from the Indian Pharmaceutical Sector

Srinivasan

2011

Asia Pacific Business Review

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Exponential GARCH model was employed to examine the impact of futures trading on spot market volatility of the twelve underlying shares of pharmaceutical sector of India. The empirical analysis was conducted for the daily closing price returns of each stock of pharmaceutical firms for the different time periods from 1st January, 1996 through 12th March, 2009. The analysis reveals mixed findings. Most of the selected pharmaceutical stocks reveal an introduction of futures market declined the volatility of underlying spot market. This is followed by positive impact of introduction of futures on the spot market volatility of the selected underlying shares of pharmaceutical firms in India. Besides, the empirical findings of most of the selected pharmaceutical scrips indicate the existence of positive asymmetric response to new information on the volatility of underlying spot market.

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Impact of Derivatives and Asymmetric Effect on Indian Stock Market Volatility

Srinivasan

Deo

2009

Asia Pacific Business Review

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The paper investigates the impact of underlying spot market volatility after the introduction of futures and options trading in India by using standard EGARCH (1,1) model. The dataset was retrieved from National Stock Exchange (NSE) website for daily closing price series of S&P CNX Nifty spot index for the period from 1 st January 1996 to 31 st March 2009. The findings suggest that, both futures and options trading reduce the volatility of spot market after the introduction of futures and options trading in India. Besides, the results of futures and options markets reveal that there were no asymmetric effects present in Indian spot market. This finding are quite interesting, since noise trading is the cause of asymmetric responses, the Nifty spot index was not significantly affected by such market participants. Hence, the present study suggests that the introduction of futures and options trading have improved the speed and quality of information flowing in spot market. This enhances the overall market depth, increases market liquidity and ultimately reduces informational asymmetries and therefore compresses spot market volatility in India.

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Do Individual Investors on the Futures Market Induce Higher Spot Market Volatility?

Cited by 3 publications

References 0 publications

Impact of derivatives trading on spot market volatility: an empirical study

Impact of derivatives trading on spot market volatility: an empirical study

Stock Futures Trading Information and Spot Price Volatility: Evidence from the Indian Pharmaceutical Sector

Impact of Derivatives and Asymmetric Effect on Indian Stock Market Volatility

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