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The Effects of Index Futures Trading Volume on Spot Market Volatility in a Frontier Market: Evidence from Ho Chi Minh Stock Exchange

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  • Loc Dong Truong

    (College of Economics, Can Tho University, Can Tho City 94115, Vietnam)

  • H. Swint Friday

    (RELLIS Campus, Texas A&M University, Bryan, TX 77807, USA)

  • Anh Thi Kim Nguyen

    (Faculty of Economics and Business Administration, An Giang University, Vietnam National University Ho Chi Minh City, Long Xuyen City 90116, Vietnam)

Abstract

This analysis is the first to investigate the influence of index futures trading volume on spot market volatility for the Ho Chi Minh Stock Exchange (HOSE). The data utilized in this study are the daily VN30-Index futures contract trading volume starting at the inception date for the VN30-Index futures contract, 10 August 2017 and going through 10 August 2022. Using an autoregressive distributed lag (ARDL) bounds testing approach, the empirical findings reveal a positive relation between VN30-Index futures trading volume and the volatility of the spot market for the HOSE in the short-run. In addition, the results of the ARDL tests confirm in for the long-run, trading volume of futures contracts has a significant positive influence on spot market volatility. Moreover, the results derived from the error correction model (ECM) indicate that only 5.54% of the disequilibria from the previous trading day are converged and corrected back to the long-run equilibrium from the current day. Based on the findings, we recommend that Vietnamese policymakers establish relevant intervention polices on speculation of individual investors in order to provide stabilization safeguards for the underlying stock market.

Suggested Citation

  • Loc Dong Truong & H. Swint Friday & Anh Thi Kim Nguyen, 2022. "The Effects of Index Futures Trading Volume on Spot Market Volatility in a Frontier Market: Evidence from Ho Chi Minh Stock Exchange," Risks, MDPI, vol. 10(12), pages 1-13, December.
    • Handle: RePEc:gam:jrisks:v:10:y:2022:i:12:p:234-:d:997514
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    References listed on IDEAS

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    1. John Board & Gleb Sandmann & Charles Sutcliffe, 2001. "The Effect of Futures Market Volume on Spot Market Volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 28(7‐8), pages 799-819, September.
    2. Wee Ching Pok & Sunil Poshakwale, 2004. "The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange," Applied Financial Economics, Taylor & Francis Journals, vol. 14(2), pages 143-154.
    3. Antonakakis, Nikolaos & Floros, Christos & Kizys, Renatas, 2016. "Dynamic spillover effects in futures markets: UK and US evidence," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 406-418.
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