Abstract
This study investigated the impact of derivatives trading on spot market volatility. Major Asian markets (Hong Kong, Thailand, Korea, Singapore, Taiwan, and Japan) were examined to determine the conditional volatility shifts before and after the introduction of index options. This study follows the approach of Rahman [Rahman, S. (2001), The introduction of derivatives on the Dow Jones industrial average and their impact on the volatility of component stocks. The Journal of Futures Markets, 21-7, 633–653] based upon the GARCH (1.1) model to capture the conditional volatility before and after the event. The sample period was divided into three window periods to limit seasonal and year-end effects. The window results suggested that introducing index options decreased volatility in Hong Kong and increased it in Japan. Additionally, no structural changes were observed during the maximum window period in Taiwan, Korea, Singapore, and Thailand.
Published Version
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