Abstract
Investments are essential as the growth of the stock market denoted through increased investments results in the growth of the economy. But they are always subject to various risks in the market. These risks are to be mitigated for the development of an efficient economic system by the market itself. Apart from the stock segment, the Indian financial market is a home for futures and options segments that facilitate the hedging of risks involved in the investments. For considering any derivative market as a hedging tool, one of the prerequisites is the presence of integration between such derivative market and its underlying market. The present study focuses on testing the relationship between Indian stock market and the options market, represented by NSE Nifty 50 index and index options on it respectively, to know whether the options segment is suitable for hedging the risks implicit with investments in the stock market, with substantial consideration to payoff structure of the market denoted by different moneyness groups viz.
Highlights
Since the intention of options market is to facilitate hedging the risks involved in the investment inThe ability to be exercised at the sole discretion of the holder keeps the options most dynamic, among other derivative instruments
The presence of this paper is to examine the suitability of the Indian of lead-lag relationship shows the informational options market in hedging the investments in the inefficiency of the related markets
Information in related markets, arbitrage opportunities The derivative markets are useful for hedging the risk do not exist and even if they exist, they cause the price involved in the underlying spot market only when the discrepancies in related markets to be disappeared theoretical presumption of integration among both the (Chan, Chung, & Johnson, 1993)
Summary
The ability to be exercised at the sole discretion of the holder keeps the options most dynamic, among other derivative instruments Information in related markets, arbitrage opportunities The derivative markets are useful for hedging the risk do not exist and even if they exist, they cause the price involved in the underlying spot market only when the discrepancies in related markets to be disappeared theoretical presumption of integration among both the (Chan, Chung, & Johnson, 1993). The absence of this markets stands true. The literature on exploration of the that the results of the same would be constructive for lead-lag association among allied markets extends to market participants who approach the options market informational efficiency, which denotes simultaneous for hedging, by assisting them to exploit anticipative and chockfull reflection of information among markets. market movements
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