Advanced Search
MyIDEAS: Login to save this paper or follow this series

The impact of speculation upon volatility and market efficiency: The badla experience on the BSE


Author Info

  • Ajay Shah


On 12 March 1994, SEBI imposed new norms on trading in the Bombay Stock Exchange, and the effective consequence of this has been an elimination of {\em badla}, a form of forward trading. Without badla, the role of speculative traders on the BSE is diminished. This paper sets out to measure the impact of this elimination of speculative trading upon volatility on the BSE. We explore, and criticise, a variety of different methods of arriving at a conclusion on this question, and present an estimation strategy which exploits the unique opportunity to view this episode as a natural experiment. Our examination of daily unsystematic risk, which takes the value of 3\% in our sample on average, reveals that badla diminishes it by roughly 0.25 percentage points. The statistical significance of this estimate is weak, especially in the light of a qualitative argument suggesting that this estimate is biased upwards. Working with weekly returns data, badla seems to have no impact upon unsystematic risk. On the subject of market efficiency, we find that badla is slightly beneficial for short--horizon market efficiency: the non-forecastability of daily returns of A companies has worsened in the year following 12 March 1994. This effect is concentrated in the short horizon; the degree of forecastability of weekly returns has actually diminished slightly in the year after 12 March 1994.

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:
Download Restriction: no

File URL:
Download Restriction: no

Bibliographic Info

Paper provided by EconWPA in its series Finance with number 9507002.

as in new window
Date of creation: 11 Jul 1995
Date of revision:
Handle: RePEc:wpa:wuwpfi:9507002

Note: Postscript. Also available as
Contact details of provider:
Web page:

Related research


Find related papers by JEL classification:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Ross, S.A., 1989. "Commentary: Using Tax Policy To Curb Speculative Short-Term Trading," Papers t3, Columbia - Center for Futures Markets.
Full references (including those not matched with items on IDEAS)


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Iqbal, Javed, 2008. "Stock Market in Pakistan: An Overview," MPRA Paper 11868, University Library of Munich, Germany.


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


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9507002. 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: (EconWPA).

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.