 Index Futures Trading and Spot Price VolatilityJournal of Emerging Market Finance, 2005, vol. 4, issue 2, 151-167 Abstract: This article contributes to the debate whether the introduction of derivative instruments stabilises or destabilises markets for underlying assets. It has often been argued that due to the higher degree of leverage, futures markets tend to attract uninformed speculative investors and thus destabilise cash markets by increasing volatility. On the other hand, it has been pointed out that futures markets increase the overall market depth and informativeness, are important for price discovery, allow the transfer of risk, and may actually reduce spot volatility. The empirical evidence is controversial and has been concentrated on large capitalisation markets. This paper investigates the issue for a dynamic emerging market, the Athens Stock Exchange, employing a methodology that allows the examination of changes in the nature of volatility rather than changes in volatility per se, and allowing for asymmetric responses to news. To anticipate the results, spot volatility appears unaffected with some evidence to suggest that uncertainty is actually reduced following the introduction of futures trading. Keywords: Futures index trading; volatility; speculation; emerging markets (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:4:y:2005:i:2:p:151-167 DOI: 10.1177/097265270500400203 Access Statistics for this article More articles in Journal of Emerging Market Finance from Institute for Financial Management and Research |
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