Introduction Of Stock Index Futures Research Articles

Can the introduction of stock index futures stabilize the volatility of the stock market? Evidence from the Chinese stock market

Since the introduction of China's stock index futures in 2010, it has played a decisive role in enhancing the operation of the Chinese stock market, improving pricing efficiency, and clarifying the asset price mechanism. Using the daily closing prices of the Chinese stock market over 2005–2021, this study examined the price discovery and risk spillover effects of CSI 300 index futures on stock market volatility. The results show that (Adnan & Kasman, 2008) there is a two-way linear mechanism volatility spillover effect and (Ahn et al., 2019) a two-way guiding relationship in the nonlinear mechanism between the CSI 300 index spot and futures markets.

The Impact of Futures Trading Over Spot Market Intraday Volatility: Evidence From an Emerging Market, Borsa Istanbul

The objective of this article is to examine the impact of stock index futures on stock markets. Of particular interest is the evidence for change in overall volatility and liquidity after the introduction of stock index futures. The impact of derivatives trading on price volatility in the underlying spot market return is examined using the exponential GARCH (EGARCH) model which was proposed by Nelson (1991). Our empirical findings support the view that introducing futures trading decreases volatility in the spot market and the speed with which market information is reflected in spot market prices. However, volatility persistence increased in the post-futures period. In the light of these findings it can be said that the speed and nature of information differ between pre-futures period and post-futures period. JEL Classification : G13, G14, G32 Keywords : Futures Markets, Spot Markets, Volatility, GARCH Models, Emerging Markets DOI : 10.7176/RJFA/10-2-07

Bollinger Bands Trading Strategy Based on Wavelet Analysis

With the popularization of the concept of quantitative investment and the introduction of stock index futures in China, the research on the quantitative trading strategies of stock index futures is emerging gradually. This paper takes the CSI 300 stock index futures as the research object and sets up the Bollinger Bands trading strategy to test it, while considering the factors such as returns, retracement and income risk ratio, etc. Furthermore, the paper uses the wavelet noise reduction to process the data of price and the Bollinger Bands trading strategy to test the processed data. Compared with the results of the first test, the Bollinger Band trading strategy based on wavelet analysis has greater returns, less risk and better applicability.

Role of index futures on China's stock markets: Evidence from price discovery and volatility spillover

The introduction of stock index futures in China in 2010 marked an important development in the country's financial markets. It was however not without controversy as regulators blamed the futures market for its role in the stock market crash in 2015. This paper examines the intraday price discovery and volatility spillover relationship between the CSI 300 equity index and index futures in China. Results from the study, covering the period 2010–2015, reveal that index futures plays a dominant role in contributing towards price discovery, with an average yearly information share of about 67%. The price leadership of the futures market, although found to be strong, is diminished in the presence of stringent regulatory trading curbs that were put in place as a response to the crisis. Furthermore, investigation into volatility spillover documents significant return and volatility shocks transmitted from the stock market to the futures market. The evidence, which contradicts regulatory claims, is explained in the context of the unique institutional trading structure in China.

Does the Introduction of Stock Index Futures Destabilize the Spot Market? Some Cross-Country Evidence from Asia

The role of stock index futures (SIFs) in the stock market is very much under debate in the literature. This article studies the effect of the introduction of SIFs to the spot market in China and six other Asian markets. Based on the previous literature, we develop a hypothesis that in a bull market in which bubbles and noise traders are more likely to exist, the introduction of SIFs as an arbitrage instrument may cause price reversal and increase short-term volatility in the underlying market. We examine China and six other major stock markets in Asia to test this hypothesis. Pre- and post-launch standard volatility comparison, rolling windows estimation of volatility, and Markov Switching ARCH estimation are employed in our empirical analysis. Our results are found to support our hypothesis.

Asymmetric effect of market liquidity demand shocks on price shocks

Purpose – With the launch of CSI 300 Index Futures trading on April 16, 2010, China's stock market presents a more diversified trend, such as arbitrage, trends strategy entering the market rapidly. Therefore, the liquidity demand also presents a higher frequency, and the change is more complex than the original situation. In recent years, many literatures are engaged in high-frequency trading (HFT) related research, and an important concern is the impact of HFT on market volatility and liquidity. Is it playing the role of stabilizing the market, or bringing more noise and turmoil? Based on this, the purpose of this study is trying to study what kind of impact the HFT have on market liquidity before and after the launch of the CSI 300 Index Futures. Design/methodology/approach – The paper uses the simultaneous equations model of price and net order flow proposed by Deuskar and Johnson and for the first time introduces an asymmetric identification through heteroskedasticity (ITH) method. The paper applies the method to the high-frequency data of CSI 300 Index and the Futures and classifies the buying and selling orders through volume clock. The price risks are decomposed into a component driven by the impact of liquidity demand shocks (flow-driven risks (FDRs)) and a component driven by external information (information-driven risks (IDRs)). Findings – The empirical results show that the flow-driven risk of CSI 300 Index Futures is about 20 percent. In addition, before the introduction of the Index Futures, there is no asymmetric effect between liquidity demand shocks and price shocks existing in either CSI 300 Index or CSI 300 Index Futures. While after the introduction of stock Index Futures, the asymmetric effect in the both two markets emerges. The impact of the buying net order flows on the price is less than the impact of the selling net order flows on CSI 300 Index, whereas the impact of the buying net order flows on the price is larger than the impact of the selling net order flows on CSI 300 Index Futures. The paper further analyzes the relationship between liquidity and FDR and gets the conclusion that the reasons for the deterioration of the liquidity level are caused by the impact of the external information shocks, rather than the liquidity demand shocks. And entries of HFTs like arbitrage traders and hedge traders play a positive role in improving the liquidity level in the market. Originality/value – The paper introduces an asymmetric ITH method for the first time and finds asymmetric effect of the net order flow on the return in both CSI 300 Index market and the corresponding Index Futures market.

The Empirical Study about Introduction of Stock Index Futures on the Volatility of Spot Market

April 16, 2010, China’s first four Index Future contracts have been listed for trading in the stock exchange. Stock index futures are the world's fastest growing financial derivative products currently, and the research of them is of significance to the development of China's financial market. Therefore, it is particularly important to concern the market operation status of stock index future after its official listed. As we all know that there are linkage effects of the futures and spot, stock index futures market will have some impact on the spot market. Based on the above point, this study identified the Shanghai and Shenzhen 300 stock index futures market as the research object, focusing on what volatility affects the stock index futures have made on the spot market over the past 3 years. Through empirical findings, we can evaluate the operation conditions of stock index futures market objectively. This paper applies GARCH model mainly, and introduce dummy variables, collecting daily trading data between 16 April 2007 and 16 April 2013 on the spot market, and studies the impact of volatility on the spot market in-depth by empirical test. The results showed that over the past 3 years, introduction of stock index futures has reduced the volatility of the spot market which has brought a positive impact.

Impact of Futures Trading on Volatility of CNX Nifty

This paper focuses on the volatile behaviour in the equity market in individual stocks after the introduction of future trading on individual stocks. One of the innovations in financial markets in recent years has been the introduction of derivatives with the introduction of stock index futures. Futures and options play an important role in price discovery, portfolio diversification and hedging. This paper examines the stock market volatility of individual stocks listed on the S&P (US-based Standard & Poor's Financial Information Services) CNX (‘C’ stands for CRISIL, ‘N’ stands for NSE and X stands for Exchange or Index) Nifty index after the introduction of futures trading. It uses the family of generalised autoregressive conditional heteroscedasticity technique to capture the time-varying nature of volatility and volatility clustering phenomenon in the data. The empirical evidence suggests that in most of the stocks, there is no significant change in the volatility of stock market. But with regard to the information flow to the spot market, future trading has increased volatility.

Impact of Index Futures and Options Introduction: A Case of Spot Market Volatility in BSE

Derivatives in India were introduced in June 2000 with the introduction of stock index futures in the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). An important reason for the introduction of futures and options in India was the high trading volatility of the Indian stock market. This paper seeks to provide evidence on the impact of futures and options on spot market volatility. The sample data consist of daily opening and closing price returns of Sensex from January 1, 1997 to December 31, 2007. This paper uses family of GARCH techniques to capture the time-varying nature of volatility and volatility clustering phenomenon in the data. The study found that there are no significant changes in the volatility of the spot market due to the introduction of index futures and options in the Sensex Index.

The impact of futures trading on volatility of the underlying asset in the Turkish stock market

This paper examines the impact of the introduction of stock index futures on the volatility of the Istanbul Stock Exchange (ISE), using asymmetric GARCH model, for the period July 2002–October 2007. The results from EGARCH model indicate that the introduction of futures trading reduced the conditional volatility of ISE-30 index. Results further indicate that there is a long-run relationship between spot and future prices. The results also suggest that the direction of both long- and short-run causality is from spot prices to future prices. These findings are consistent with those theories stating that futures markets enhance the efficiency of the corresponding spot markets.

Derivatives and Asymmetric Response of Volatility to News in Indian Stock Market

The purpose of this article is to investigate the effect of the introduction of stock index futures on the volatility of the spot equity market and to test the impact of the introduction of the stock index futures contracts, a GARCH model is modified along the lines of GJR-GARCH and EGARCH model, especially to take into account the link between information and volatility. This paper provides the evidence that there is not much change in the volatility pattern after the introduction of futures in the Indian stock market. The impacts of futures trading for the post futures period can be captured by the asymmetric coefficient (gamma), suggest that there is a statistically significant and positive asymmetric effect. Thus the introduction of futures trading has impact on the asymmetric coefficient. It shows the similar pattern for the pre and post futures period. Empirical research can be further expanded by selecting and analyzing high frequency intraday data and the inclusion of additional economic variables in the conditional variance equation.

Index futures trading, information and stock market volatility: The case of Greece

This paper examines the effect of futures trading on the volatility of the underlying spot market. It focuses on various techniques to investigate the relationship between information and the volatility of the FTSE/ASE-20 and FTSE/ASE Mid 40 indices in Greece. The results for the FTSE/ASE-20 index suggest that futures trading has led to decreased stock market volatility (negative effect), but the results for the FTSE/ASE Mid 40 index indicate that the introduction of stock index futures has led to increased volatility (positive effect), while the estimations of the unconditional variances indicate lower market volatility after the introduction of stock index futures. Furthermore, the results show that good news has a more rapidly impact on FTSE/ASE-20 stock return volatility. For the FTSE/ASE Mid 40 index, the results suggest that news is reflected in prices more slowly, while old news has a less persistent effect on prices. These findings are helpful to financial managers dealing with Greek stock index futures.

Derivatives Trading and Volatility - A Study of the Indian Stock Markets

Equity derivatives trading started on June 9, 2000 with introduction of stock index futures by Bombay Stock Exchange (BSE). National Stock Exchange (NSE) also commenced its trading on 12 June, 2000 based on S&P Nifty. Subsequently, other products like stock futures on individual securities, index options and options on individual securities were introduced. This paper tries to examine the impact of derivatives trading on the volatility of S&P Nifty and BSE Sensex using ARCH/GARCH technique. It also examines the behaviour of volatility of other indices such as Nifty Junior, NSE 200, S&P Nifty 500, BSE-100 and BSE-200 to see whether the market wide volatility has declined over the sample period. Further, surrogate indices like BSE100 and Nifty Junior are used to assess whether the introduction of derivatives per se has been instrumental or the volatility has plummeted in line with general fall in market wide volatility. The results established that introduction of futures and options have negligible or no effect on the volatility as evident from GARCH (1, 1) model. When surrogate index taken into consideration S&P Nifty showed decline in volatility while BSE Sensex exhibited rise in volatility. EGARCH model indicates fall in volatility in case of all indices.

Does the introduction of stock index futures effectively reduce stock market volatility? Is the 'futures effect' immediate? Evidence from the Italian stock exchange using GARCH

The impact of futures trading on the underlying asset volatility, and its characteristics, is still debated both in the economic literature and among practitioners. The aim of this study is to analyse the effect of the introduction of stock index futures on the volatility of the Italian Stock Exchange. This study mainly addresses two issues: first, the study analyses whether the reduction of stock market volatility showed in the post-futures period, already pointed out in previous research, is effectively due to the introduction of futures contract. Second, whether the ‘futures effect’, if confirmed, is immediate or delayed with respect to the moment of the futures trading onset is tested. The results show that the introduction of stock index futures per se has led to diminished stock market volatility and no other contingent cause seems to have systematically reduced it. Further, they also suggest that the impact of futures onset on the underlying market volatility is likely to be immediate. These findin...

The Impact of Stock Index Futures Trading on Daily Returns Seasonality: A Multicountry Study

In this article, we investigate the impact of the introduction of stock index futures trading on the daily returns seasonality of the underlying index for seven national markets. It has been previously argued that the introduction of futures trading should lead to reduced seasonality of mean returns, and generally our results support this conclusion. The impact of index futures introduction on return autocorrelations and volatility is also tested, and the evidence presented suggests that futures trading has no impact on the former, although a change in the seasonal for the latter was detected.

The Use of Interest Rate Futures and Options by Corporate Financial Managers

existence as currency futures began trading on the International Monetary Market of the Chicago Mercantile Exchange. By 1975, the definition of financial futures was greatly expanded when interest rate futures on GNMA certificates were initiated on the Chicago Board of Trade. By early 1976, the Chicago Mercantile Exchange quickly countered with interest rate futures on 90-day U.S. Treasury bills. A number of other products rapidly followed. Futures contracts were introduced for Treasury bonds, Treasury notes, commercial paper, certificates of deposit, and other interest-related instruments. The enthusiasm eventually spread to the equity markets in the early 1980s with the introduction of stock index futures on the Value Line Index by the Kansas City Board of Trade. The Chicago Mercantile Exchange quickly came into the equity picture with the Standard and Poor's 500 Index futures contract as did the New York S ock Exchange with the NYSE Composite Index futures.