Abstract
In this paper an analysis on the dynamic relationship between Index Futures and Spot Index Volatility is carried out to ascertain the extent of influence that Index Futures hold over underlying (spot index). For this purpose relevant intraday data from 1 st April 1998 – 31 st March 2000 of S&P CNX NIFTY (50 ) are used to measure the level of volatility of spot Index during the pre-derivatives period. The second reference period is taken from 1 st 0ctober 2000 – 30 th September 2002 to determine the level of volatility during the post-derivatives period. This is followed by a comparative analysis of both the periods and the findings put forth by the comparison affirms that there exists a significant correlation between index futures and underlying volatility (Spot Index) as the level of the volatility throughout the post-derivatives period has had a considerable decline. The findings of this study collaborate and strengthen the results of many studies mentioned in the review.
Highlights
Ever since the willingness of risk-averse economic agents, to guard themselves against uncertainties arising out of fluctuations in the asset prices, led a unique system to grow slowly all over the business world, known as derivatives in the modern terminology
The journey of this research tookoff from its origin in 1975 when Chicago Board of Trade (CBOT) conducted the first study to examine the relationship between option listing and the underlying stock price volatility and the study has revealed that the stock return volatility witnessed a decrease after the introduction of options
This paper seeks to determine if introduction of Index Futures affects the spot index volatility so as to allay some of the concerns that regulatory agencies, researchers and investing community have about derivatives trading
Summary
Ever since the willingness of risk-averse economic agents, to guard themselves against uncertainties arising out of fluctuations in the asset prices, led a unique system to grow slowly all over the business world, known as derivatives in the modern terminology. The journey of this research tookoff from its origin in 1975 when Chicago Board of Trade (CBOT) conducted the first study to examine the relationship between option listing and the underlying stock price volatility and the study has revealed that the stock return volatility witnessed a decrease after the introduction of options This initial finding is supplemented and elaborated by many other studies conducted later on, for example, the study of Dr M. Nathan Associates (1969) come out with the finding that diversion of speculative interest to the option market may reduce the volume of stock trading and may cause reduction in the liquidity that might increase volatility. The present study has taken a reasonable reference period so as to arrive at some dependable conclusion
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
