Effect of futures trading on spot price volatility: evidence for NSE Nifty using GARCH

Sathya Swaroop Debasish

Afro-Asian Journal of Finance and Accounting, 2008, vol. 1, issue 2, pages 140-150

Abstract: This study aims to study the impact of the introduction of Nifty index futures on the volatility of the Indian spot markets using data from April 1997 to April 2007. The study considered six measures of volatility, dynamic linear regression models and the GARCH models to investigate volatility in NSE Nifty prices, both before and after the onset of futures trading. The study confirmed no structural change after the introduction of futures trading on Nifty and found that, whilst the pre-futures sample was integrated, the post-futures sample was stationary. Spot returns volatility is found to be less important in explaining spot returns after the advent of futures trading in NSE Nifty.

Keywords: finance; futures trading; GARCH; NSE Nifty; spot price volatility; stock index; India; Indian spot markets; spot returns (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:mes:afasfa:v:1:y:2008:i:2:p:140-150

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