Derivative Trading and Spot Market Volatility: Evidence from Indian Market

Dr. Dhanya Alex and Dr. Roshna Varghese
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Dr. Roshna Varghese: Associate Professor, FISAT Business School, Mookkannoor, Angamaly, Kochi

International Journal of Innovation and Economic Development, 2015, vol. 1, issue 3, 23-34

Abstract: The present study tries to estimate the effect of introduction of individual stock derivatives on the underlying stock volatility in Indian stock market. To estimate the effect of introduction of derivatives on stock market, GARCH family models which are known for their ability to model volatility. The return series of the ten companies were tested using methods like, unit root test and descriptive statistics to confirm that GARCH models could be used. Using these models, the asymmetric nature of stock returns and the volatility of stock returns on the introduction of derivatives are checked. The results reveal that the introduction of derivatives has decreased the volatility of the underlying stock returns. It was also found that most of the stock returns show asymmetric behaviour.

Keywords: Derivatives; GARCH; Stock volatility (search for similar items in EconPapers)
JEL-codes: M00 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:mgs:ijoied:v:1:y:2015:i:3:p:23-34

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