Derivatives Trading and the Volume-Volatility Link in the Indian Stock Market
Sumon Bhaumik (),
M. Karanasos and
No wp935, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan
This paper investigates the issue of temporal ordering of the range-based volatility and volume in the Indian stock market for the period 1995-2007. We examine the dynamics of the two variables and their respective uncertainties using a bivariate dual long-memory model. We distinguish between volume traded before and after the introduction of futures and options trading. We find that in all three periods the impact of both the number of trades and the value of shares traded on volatility is negative. This result is in line with the theoretical argument that a marketplace with a larger population of liquidity providers will be less volatile than one with a smaller population. We also find that (i) the introduction of futures trading leads to a decrease in spot volatility, (ii) volume decreases after the introduction of option contracts and, (iii) there are signifcant expiration day effects on both the value of shares traded and volatility series.
Keywords: derivatives trading; emerging markets; long-memory; range-based volatility; value of shares traded (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:wdi:papers:2008-935
Access Statistics for this paper
More papers in William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan 724 E. University Ave, Wyly Hall 1st Flr, Ann Arbor MI 48109. Contact information at EDIRC.
Series data maintained by WDI ().