Understanding Volatility - the Case of the Introduction of Futures Trading in the National Stock Exchange, India

13 Pages Posted: 4 Nov 2002

See all articles by Saurabh Kumar

Saurabh Kumar

Indian Institute of Management (IIM), Ahmedabad

Gauri Mohan

Indian Institute of Management, Ahmedabad

Sriharsha Pappu

Indian Institute of Management (IIM), Ahmedabad

Abstract

This project attempts to investigate the effect of the introduction of Futures trading in the National Stock Exchange, India (NSE) and get insights into the effect upon the volatility of the NSE. The underlying spot market volatility is estimated using symmetric GARCH methods.

Any increase in stock market volatility that has followed the onset of futures trading has generally been taken as justifying the traditional view that the introduction of futures markets induces destabilizing speculation. This has led to calls for greater regulation to minimise any detrimental effects. An alternative view is that futures markets provide an additional route by which information can be transmitted, and, therefore, increased spot market volatility may simply be a consequence of the more frequent arrival, and more rapid processing of information. Thus, futures trading may be fully consistent with efficiently functioning markets.

This paper attempts to investigate the change, if any, in the volatility observed in the Indian stock market due to the introduction of futures trading. The change in the volatility is compared not only in absolute levels of volatility but also in terms of the structure of the volatility. This is done to give insights into the way the futures market is influencing the Indian spot market's volatility.

Suggested Citation

Kumar, Saurabh and Mohan, Gauri and Pappu, Sriharsha, Understanding Volatility - the Case of the Introduction of Futures Trading in the National Stock Exchange, India. Available at SSRN: https://ssrn.com/abstract=333520 or http://dx.doi.org/10.2139/ssrn.333520

Saurabh Kumar (Contact Author)

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad 380015, Gujarat
India

Gauri Mohan

Indian Institute of Management, Ahmedabad ( email )

Vastrapur
Ahmedabad 380015, Gujarat
India

Sriharsha Pappu

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad 380015, Gujarat
India

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
537
Abstract Views
3,197
Rank
95,275
PlumX Metrics