Advanced Search
MyIDEAS: Login to save this article or follow this journal

Single Stock Futures Trading and Stock Price Volatility: Empirical Analysis

Contents:

Author Info

  • Safi Ullah Khan

    (Institute of Management Sciences, Kohat University of Science and Technology, Kohat)

  • Syed Tahir Hijazi

    (University of Central Punjab, Lahore, Pakistan)

Registered author(s):

    Abstract

    This study examines impact of the introduction of single stock futures contracts on the return volatility of the SSFs-listed underlying stocks. The study documents a significant decrease in return volatility for the SSFs-underlying stocks following the introduction of single stock futures contracts on the Karachi Stock Exchange. The multivariate analysis in which the spot trading volume, the futures trading volume and open interest were partitioned into news and informationless components, the estimated coefficient of expected futures volume component is statistically significant and negatively related to volatility, suggesting that equity volatility is mitigated when the expected level of futures activity is high. The findings of the decreased spot price volatility of the SSFs-underlying stocks associated with large expected futures activity is important to the debate of regarding the role of equity derivatives trading in stock market volatility. These empirical results for the Pakistan’s equity market support theories implying that equity derivates trading improves liquidity provision and depth in the equity markets, and appear to be in contrast to the theories implying that equity derivates markets provide a medium for destabilising speculation. Finally, the SSFs-listed stocks were grouped with a sample of non-SSFs stocks to examine cross-sectional data for comparing changes in return volatility. After controlling for the effects of a number of determinants of volatility, sufficient evidence is found to support that, this multivariate test, like the previous analysis, provides no evidence that the volatility of the SSFsunderlying stocks is positively related to the introduction of the single stock futures trading in the Pakistan’s stock market.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.pide.org.pk/pdf/PDR/2009/Volume4/553-563.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 48 (2009)
    Issue (Month): 4 ()
    Pages: 553–563

    as in new window
    Handle: RePEc:pid:journl:v:48:y:2009:i:4:p:553-563

    Contact details of provider:
    Postal: P.O.Box 1091, Islamabad-44000
    Phone: (92)(51)9248051
    Fax: (92)(51)9248065
    Email:
    Web page: http://www.pide.org.pk
    More information through EDIRC

    Related research

    Keywords:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:48:y:2009:i:4:p:553-563. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Khurram Iqbal).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.