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Options pricing and short‐selling in the underlying: Evidence from India

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  • Alok Dixit
  • Vipul
  • Shivam Singh

Abstract

This study provides new insights into certain recent developments in derivatives trading in India. Specifically, it examines the implications of introduction of short‐selling for pricing efficiency of the Nifty 50 index derivative contracts of National Stock Exchange of India. The empirical results suggest that the introduction of short‐selling, supported by a well‐functioning security lending and borrowing market, has significantly reduced the overpricing of Nifty 50 index put options. Moreover, the introduction of this short‐selling mechanism has lessened the underpricing of Nifty 50 index futures.

Suggested Citation

  • Alok Dixit & Vipul & Shivam Singh, 2019. "Options pricing and short‐selling in the underlying: Evidence from India," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(10), pages 1250-1268, October.
    • Handle: RePEc:wly:jfutmk:v:39:y:2019:i:10:p:1250-1268
    DOI: 10.1002/fut.22040
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