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The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market

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Author Info
Evangelos Drimbetas
Nikolaos Sariannidis
Nicos Porfiris
Abstract

In this article, the effects of the introduction of the futures and options into the FTSE/ASE 20 index on the volatility of the underlying index are studied. This particular issue is quite controversial since contradictory results have been found in various markets. Analysing the data (August 1997--April 2005) with the help of an EGARCH model it is shown that the introduction of derivatives has induced a reduction of the conditional volatility of the FTSE/ASE20 index and consequently it has increased its efficiency.

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Article provided by Taylor and Francis Journals in its journal Applied Financial Economics.

Volume (Year): 17 (2007)
Issue (Month): 2 (January)
Pages: 139-148
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Handle: RePEc:taf:apfiec:v:17:y:2007:i:2:p:139-148

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  1. Mills, T C, et al, 2000. "Seasonality in the Athens Stock Exchange," Applied Financial Economics, Taylor and Francis Journals, vol. 10(2), pages 137-42, April. [Downloadable!] (restricted)
  2. Carolyn D. Davis & Alice P. White, 1987. "Stock market volatility," Staff Studies 153, Board of Governors of the Federal Reserve System (U.S.).
  3. Dekker, Arie & Sen, Kunal & Young, Martin R., 2001. "Equity market linkages in the Asia Pacific region: A comparison of the orthogonalised and generalised VAR approaches," Global Finance Journal, Elsevier, vol. 12(1), pages 1-33. [Downloadable!] (restricted)
  4. Koutmos, Gregory & Negakis, Christos & Theodossiou, Panayiotis, 1993. "Stochastic Behaviour of the Athens Stock Exchange," Applied Financial Economics, Taylor and Francis Journals, vol. 3(2), pages 119-26, June. [Downloadable!] (restricted)
  5. Mervyn A. King & Sushil Wadhwani, 1989. "Transmission of Volatility Between Stock Markets," NBER Working Papers 2910, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Ali F. Darrat & Shafiqur Rahman & Maosen Zhong, 2002. "On the Role of Futures Trading in Spot Market Fluctuations: Perpetrator of Volatility or Victim of Regret?," Journal of Financial Research, Southern Finance Association and Southwestern Finance Association, vol. 25(3), pages 431-444. [Downloadable!] (restricted)
  7. Coutts, J Andrew & Kaplanidis, Christos & Roberts, Jennifer, 2000. "Security Price Anomalies in an Emerging Market: The Case of the Athens Stock Exchange," Applied Financial Economics, Taylor and Francis Journals, vol. 10(5), pages 561-71, October. [Downloadable!] (restricted)
  8. G.J. Santoni, 1987. "Has programmed trading made stock prices more volatile?," Review, Federal Reserve Bank of St. Louis, issue May, pages 18-29. [Downloadable!]
  9. Brailsford, Timothy J. & Faff, Robert W., 1996. "An evaluation of volatility forecasting techniques," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 419-438, April. [Downloadable!] (restricted)
  10. Bologna, Pierluigi & Cavallo, Laura, 2002. "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," Applied Financial Economics, Taylor and Francis Journals, vol. 12(3), pages 183-92, March. [Downloadable!] (restricted)
  11. Papachristou, George, 1999. "Stochastic Behaviour of the Athens Stock Exchange: A Case of Institutional Nonsynchronous Trading," Applied Financial Economics, Taylor and Francis Journals, vol. 9(3), pages 239-50, June. [Downloadable!] (restricted)
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