DOES INDIVIDUAL STOCK FUTURES AFFECT STOCK MARKET VOLATILITY IN INDIA?

Naliniprava Tripathy, S. V. Ramana Rao and A. Kanagaraj
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Naliniprava Tripathy: Indian Institute of Management, Shillong, India
A. Kanagaraj: IIM, Indore, India

Chapter 24 in Handbook of Business Practices and Growth in Emerging Markets, 2009, pp 483-497 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractPresently, India's derivative market turnover is more than the cash market. The impact of derivatives on the cash market volatility is much debated and widely studied. Because derivatives play a significant role in the stock market for the development of economy, this chapter focuses on assessing the impact of the introduction of stock derivatives trading on the underlying stocks volatility in India by applying both generalized autoregressive conditional heteroskedasticity and autoregressive conditional heteroskedasticity model for a period of 7 years from June 1999 to July 2006. Prior studies on the effects of futures and options listing on the underlying cash market volatility suggest that introduction of stock futures do not lead to a change in the volatility. However, our study indicates that although stock future derivatives are not responsible for increase or decrease in spot market volatility, market factors may contribute to increases in stock market volatility.

Keywords: Emerging Markets; Growth; Business Practices; International Business; International Marketing; Developing Country; Transitional Economies (search for similar items in EconPapers)
JEL-codes: I10 (search for similar items in EconPapers)
Date: 2009
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