Preliminary evidence on a new market: The futures on the Italian treasury bonds

Esposito, Marcello; Giraldi, Claudio

doi:10.1002/fut.3990140203

Cited by 9 publications

(1 citation statement)

References 19 publications

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“…Previous studies of the effect of derivatives on cash market volatility have used a variety of techniques to put changes in cash market volatility into a meaningful context. Some, such as Figlewski (1981), Simpson and Ireland (1982) and Esposito and Giraldi (1994), have compared volatility in a market for which a futures market exists with volatility in a related market for which no futures market exists. Yet, as Edwards (1988) points out, arbitrage ensures that the related market should be just as sensitive to price movement 'spillovers' from the futures market as is the underlying market.…”

Section: Testing For Excess Volatility In the Presence Of Derivamentioning

confidence: 99%

Derivatives, Volatility and Price Discovery

Cohen

1999

International Finance

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It is sometimes suggested that trading in derivatives leads to excessive volatility in underlying asset prices relative to what would be called for by fundamental values. These effects are tested by comparing the variances of price changes over different time horizons before and after the start of organized derivatives trading. It is found that ratios of the variances of multi-day and daily price movements decline for bond prices in the United States and Germany and for stock indices in the US, Japan and the UK, though no such effect is found for Japanese bonds. Other indicators confirm that serial correlation has tended to decline since the introduction of derivatives. While these results offer strong grounds for rejecting predictions of the destabilizing effects of derivatives, an alternative view, that derivatives accelerate the price-discovery functions of cash markets, cannot be definitively confirmed, given ambiguous breakpoint results and the many other contemporaneous developments in financial technology.

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