Indian Derivatives Market Research Articles

Behavioral Attributes Influencing Decision Making of Indian Derivative Market Investors

Aim: The retail investors of the Indian investment landscape are found to base their investment decisions on several factors that may not be entirely attributed to price movement and information availability. Various studies have been conducted to capture these behavioral attributes that may invariably have an influencing effect either knowingly or unknowingly on the investors. This study aims to identify these behavioral biases influencing investor’s decision-making when they are active participants in the Indian Derivative market. Methodology: The study is conducted using primary data over 200 derivative investors within the northern Indian subcontinent aged between 18 years to 50 years. A questionnaire has been adapted from the defined scales from literature and uses the Likert scale to measure the behavioral patterns of investors. A cross-sectional survey method is used to distribute the questionnaire both online and offline. Factor analysis is then employed to identify the latent variables impacting the decision-making. Results: The sample under study generated six factors that have a significant influence on decision-making. These factors include Herding bias, Overconfidence bias, Risk Aversion, Market Responsiveness, Information processing Style and Information Reliance. All these factors have a significant influence on the investors buying and selling behavior in the Indian derivative market. A reliability test was run to assess the reliability of the factors where the Cronbach alpha was found to be above 0.8 for all the factors which shows a strong internal coherence among the factors.

Global Derivatives Market with Special Preference to Indian Derivatives Market

The subject matter of the study is related to the progression as well as the pattern of the stock index derivatives market in India in the last seven years. Firstly, it is to observe how much as well as in which way the market is flourished by the investors. The past decade has witnessed the multiple growths in the volume of international trade and business due to the wave of globalization and liberalization all over the world. Today, the financial derivatives have become increasingly popular and most commonly used in the world of finance. This has grown with so phenomenal speed all over the world that now it is called as the derivatives revolution. In India, the emergence and growth of derivatives market is relatively a recent phenomenon. Since its inception in June 2000, derivatives market has exhibited exponential growth both in terms of volume and number of contracts traded. The market turnover has grown from Rs.2365 Cr. in 2000-2001 to Rs. 55606453.39 Cr. in 2014-15. Within a short span of fourteen years, derivatives trading in India has surpassed cash segment in terms of turnover and number of traded contracts. The present study encompasses of global derivatives market with special preference to Indian derivatives market.

Price Discovery and Market Efficiency in India's Financial Futures Market within the Derivatives Landscape: An Empirical Analysis

This study offers a robust, long-term analysis of price discovery and the persisting lead-lag relationship between India’s equity futures and spot markets. Utilising monthly data from April 2005 to December 2022, it filters transient noise typically associated with high-frequency data. Information Share and Common Factor Weight methodologies within the Vector Error Correction (VEC) framework consistently reveal the dominance of futures markets in the price discovery process. The insights remain consistent across three distinct periods spanning the global financial crisis and the COVID-19 pandemic. The volatility dynamics and asymmetry effects in the Indian equity futures and spot markets using the Vector Error Correction - Exponential General Autoregressive Conditional Heteroskedastic (VEC-EGARCH) approach uncover notable asymmetry effects, signifying a strong market sensitivity to negative news. This highlights the necessity for comprehensive risk management strategies and stringent regulatory supervision, especially in light of the significant growth and systemic risks in the Indian derivatives market.

Investment Behavior of Foreign Institutional Investors and Implied Volatility Dynamics: An Empirical Study on the Indian Equity Derivatives Market

The aim of this study is to examine the association between the capital flows of foreign institutional investors (FIIs) in the equity derivatives market in India and the implied volatility of options. Previous studies on FIIs and realized volatility in the equity market provide the basis for this study. Covering a period of ten years (2012–2021), this study established the importance of FII capital flows in explaining the implied volatility of options. The Granger causality test confirms the unidirectional flow of causality between FII and implied volatility (VIX) in the Indian stock market. The vector autoregression model developed in the study confirms the dynamic relationship between implied volatility and the investment behavior of foreign institutional investors (FIIs). The outcome of this study will help options traders to understand the mispricing of options because of FII’s buying pressure on implied volatility. The results will also help policymakers understand how institutional investors influence option pricing so that appropriate decisions can be made.

Options in Derivative Market: A Study on Working and Trends in Option Contracts

Indian derivative market is very vast market. Many assets,securities, products and services are offered in derivative market to the various traders and investors. In India derivative products are offered by both BSE (Bombay stock exchange) and NSE (national stock exchange). Derivatives are classified into two parts Commodity derivatives and financial derivatives. Commodity derivatives are dealt in commodities like soybean, turmeric, oats corns. Financial derivatives include securities, bonds, treasure, foreign exchange, stock index etc. All financial derivatives are performed with the help of futures; options .this paper manly concentrates option contracts. NSE and BSE are also dealt in futures and options. This paper only considers the trends and working of option contracts in BSE. Option contracts are a right to buy or sell security on or before expiry of period at a predetermined price which is called strike price. Options are not an obligation. Call option and put option are two basic positions which are used by trader to manage the risk of buying and selling of underlying asset or security. This paper shows the working and trends of options as indexed options and equity options in BSE.

Positive Affect of Financial Derivatives onThe Stock Market

The derivatives market is widely recognized in financial markets, and it has developed rapidly, but there is little evidence that it contributed to the development of financial and economic markets. This article investigates the dynamic relationship between the Indian derivatives market and the stock market to determine how it affects market pricing. This paper use the DCC-garCH model to examine the dynamics of India from the third quarter of 2018 to 2022, I find that the financial derivatives market is more financially contagious than the equity market. Therefore, I can analyse that the development of derivatives has a positive impact on economic growth.

The Relationship between Awareness and Retail Investors Investment Intentions in the Derivatives Market

The Indian derivatives market remains small despite a lengthy history, several committee recommendations, and continuous developments. The Indian derivatives market is dominated by institutional investors, with little participation from individual investors due to a lack of awareness and comprehension of the product. As a result, the objectives of this research are to establish the level of retail investor derivatives market awareness, as well as the relationship between awareness and derivatives market investment intention. A questionnaire- based survey is being conducted with a sample size of 30 respondents. The findings of the survey demonstrate that the majority of respondents have either average or below average derivatives market awareness, and that there is a strong link between awareness and derivatives market investment intention.

Testing of BSOPM on Indian Derivative Market

Testing of BSOPM on Indian Derivative Market

Are Options Trading Strategies Really Effective for Hedging in the Indian Derivatives Market?

Are Options Trading Strategies Really Effective for Hedging in the Indian Derivatives Market?

Testing Weak Form Information Memory: A Study of Indian Futures Market

The greatness and simplicity of EMH (Efficient Market Hypothesis) has surprised investors from time to time regarding the correct pricing and efficient strategies for investment. Applying the same logic to Indian Derivative market, the present paper makes an effort to examine the market efficiency of index futures. The study has undertaken tests of market efficiency of Nifty Index Futures contract from 1st January, 2018 to 1st January, 2021 Random walk theory is tried to be tested in this context and Ljung- Box test is applied to check the fluctuations in future contract prices. The background thought is kept like if market is inefficient at its weak-form that leads to the proof that market does have memory and future prices do not stick to random walk. Findings of the study reveals that past prices of future contracts cannot be used as base to forecast the terminal prices and abnormal profit can be made as they are random in nature.

Relevance of Arbitrage in the Indian Derivatives Market

The Futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future for certain agreed price. Since its introduction in the Indian market, futures are on the rise, attracting the three types of players i.e., hedgers, speculators & arbitrageurs. These players are able to book their profit only if there is any mis-match between spot-future relationship. The objective of this paper is to find out whether the spot-futures relationship holds in case of Index Futures in the Indian stock market which results in the arbitrage opportunity. This paper also aims at finding out different factors responsible for the violation of spot-futures relationship thereby determining the extent of arbitrage profits earned by the players in the Indian stock market.

Evolution of Derivatives Market in India

Evolution of Derivatives Market in India

Is Covid-19 a Black Swan Event? Evidence from the National Stock Exchange of India

This paper examines whether Covid-19 proved to be a Black Swan event for the Indian derivatives market. The second wave of the pandemic in India affected the determinants of options pricing. However, the extant literature does not examine the impact of the pandemic on the Indian derivatives market. The international evidence is indecisive on whether Covid-19 was a Black Swan event. The present study examines the effect of the pandemic shock on the bid-ask spreads and prices of options listed on the National Stock Exchange of India. The analysis is based on the daily equity options data of Nifty index options and a sample of six equity options during 2019-20. The key finding of the study is that for the Indian options market, Covid-19 proved to be a short-term shock of limited impact on the sectoral level and hence cannot be considered a Black Swan event. This finding is consistent with Taleb’s view on the pandemic.

A Study of Indian Derivatives Market and its Current Position in Global Financial Derivatives Market

Derivatives emerged as hedging instruments out of the need to control price risk. Earlier commodity prices were the sole concern of business community, and therefore, the derivatives on commodities were the first ones to emerge. The introduction of derivatives in India can be traced out in 1875, when the Bombay Cotton Trading Association Ltd was set up for futures trading in cotton. At present the markets for derivatives have been growing at a phenomenal pace. This paper traces the growth and current position of Indian derivatives market. Since its inception in June 2000, derivatives market has exhibited exponential growth both in terms of volume and number of contract traded. The market turnover has grown from Rs.24bn in 2000-01 to Rs. 2376tn in 2018-19. The present study is an effort to demonstrate the growth and expansion of derivatives in India during the time period 2010-11 to 2018-19. It also encompasses the scope, history, concept, types and growth of financial derivatives in India and the status of Indian derivatives market vis-à-vis global derivative market.

Big Data Analysis for Trend Recognition Using Machine Learning Techniques

Background: Machine learning is one of the most popular research areas today. It relates closely to the field of data mining, which extracts information and trends from large datasets. Aims: The objective of this paper is to (a) illustrate big data analytics for the Indian derivative market and (b) identify trends in the data. Methods: Based on input from experts in the equity domain, the data are verified statistically using data mining techniques. Specifically, ten years of daily derivative data is used for training and testing purposes. The methods that are adopted for this research work include model generation using ARIMA, Hadoop framework which comprises mapping and reducing for big data analysis. Results: The results of this work are the observation of a trend that indicates the rise and fall of price in derivatives , generation of time-series similarity graph and plotting of frequency of temporal data. Conclusion: Big data analytics is an underexplored topic in the Indian derivative market and the results from this paper can be used by investors to earn both short-term and long-term benefits.

Investors’ Preference and Regulatory Aspects in the Indian Derivatives Market

The Indian Stock market undoubtedly experienced tremendous growth in the trading activity in the last twenty-five years. The Derivatives segment of the market began its operations with the launch of Index Futures by the National Stock exchange of India (NSE) in the year 2000. The Derivatives, as a financial product, derives its value from an underlying asset and is primarily designed to reduce the risk which businesses and individuals face due to the fluctuations in the asset prices. It helps individuals and companies to undertake risky projects with high returns and use derivatives as a tool to hedge risk, which can potentially lead to wealth creation. The popular instruments of equity derivatives market are- Forward, Future, Option, and swaps. This paper presents the legal framework and regulatory aspects by the market regulator Securities and Exchange Board of India (SEBI) involving derivatives that is based on the recommendations of the L.C. Gupta Committee. SEBI laid its objectives in regulating derivative markets to ensure transparent trading environment, safety, and integrity.

Examining the Feasibility of Tea Futures in India

The commodity derivative market in India has gained an important place in the last few decades. However, the entry of ‘tea futures’ in the derivative market is yet to come. Tea is a substitute for coffee and has a good market worldwide. India’s contribution to world production of tea is significant, but the presence of tea futures in Indian derivative market is yet to be seen whereas coffee, being a similar commodity, has a good place in the derivatives market. This study makes an attempt to examine the feasibility of tea futures in India by studying two leading conditions for tea in comparison with coffee. The study examines the market conditions by studying the export potentiality that signifies the demand and supply; and price volatility of tea price. The observations and analysis find favourable grounds for the introduction of tea futures in the commodity derivative market to extend the benefits to various groups like tea growers and manufacturers.

Dispute Resolution on Unauthorized Liquidation of Futures Positions at the Leading Stock Exchange in India: A Case Study

The paper studies compliances of Futures Trading rules and regulations of the Stock Exchange .in the derivate market in India. The paper applies case method approach to study the trading practices of trading members of the Exchanges. It investigates the derivative market’s misuses and abuses by the trading members of the Exchange. The paper provides guidance for the appropriate regulatory framework to curtail violations of rules and regulations in Indian derivative market, and enables the investor protection. The results may be generalized in the emerging markets. Hence, researchers are encouraged to study results further in other developed countries. The paper finds that these practices are not only violation of trading rules of the Stock Exchange but also unfair and unethical trading practices. The research findings and results may lack generalizability in a case study approach.

Hedging Strategies Used in Selection of “Options” and “Forward” Contracts in Derivative Market

This Article focuses on the derivatives market, which has crossed several milestones during its developing phase, but there is still a long way to go, mainly when the International derivatives market has seen a variety of products, with sufficient liquidity, depth, and volume. One remarkable thing in the derivative market was the existence of forwarding contracts. But the major milestone in developing the derivatives market in India was the introduction of Options. The objective of introducing Options was to provide a complicated hedging strategy for the corporate in its risk management activities. Options trading can be taken to the next level with the help of understanding of Greeks (Delta Δ, Gamma Γ, Vega ν, Theta Θ, Rho ρ) and their Hedging techniques. Each Greek separates a variable that can drive an option’s price movement, giving insight on how the option’s premium will vary if that variable changes.

A Study on the Derivatives Market in India

Derivatives market a significant role to play in a country's economic development. The study's objective is to investigate the effect on the underlying market volatility of financial derivatives (futures and options). Currently, financial derivatives have become increasingly popular and utmost frequently used in the world of finance. This has grown with an extraordinary speed all over the world that now it is called as the derivatives revolution. In India, the emergence and growth of the derivatives market is relatively more derivative. This article aims to study futures and options by considering a company derivative from Indian stock market. This paper aims at suggesting the best possible ways to investors to gain more profits in derivative markets.