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Resumption of Single Stock Futures (SSFs) with Stringent Regulations and their Impact on the Risk Characteristics of the Underlying Stocks

Author

Listed:
  • Imran Riaz Malik

    () (IQRA University, Islamabad)

  • Attaullah Shah

    (Institute of Management Sciences, Peshawar)

Abstract

During the stock market turmoil and later on in the year 2008, the Securities and Exchange Commission of Pakistan (SECP) suspended trading in futures products at the Karachi Stock Exchange (KSE) due to their proven destabilizing role in Global Financial Crises (GFC). On July 27th 2009, the Single Stock Futures (SSFs) were re-launched with stringent regulations for their trading in stock market. In this study, an attempt is made to identify changes in the volatility dynamics of underlying stocks after resumption of SSFs in KSE with tighter regulations than before and whether stringent regulations are justified or not. Specifically, the study decomposes volatility into systematic and unsystematic risk components and investigates the inherent changes in the underlying stocks’ volatility subsequent to the resumption of SSFs. The findings suggest that the decrease in the systematic and unsystematic risk cannot be attributed to the firms’ contract listing, but contemporaneous market, industry or macroeconomic changes. The findings may imply that stringent regulations are unjustified, which may reduce the liquidity and efficiency of the market and do no good to the market

Suggested Citation

  • Imran Riaz Malik & Attaullah Shah, 2016. "Resumption of Single Stock Futures (SSFs) with Stringent Regulations and their Impact on the Risk Characteristics of the Underlying Stocks," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 8(2), pages 1-22, October.
  • Handle: RePEc:bec:imsber:v:8:y:2016:i:2:p:1-22
    DOI: dx.doi.org/10.22547/BER/8.2.1
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    File URL: http://imsciences.edu.pk/files/journals/volume%208_No2_October2016/1%20-Resumption%20of%20Single%20Stock%20Futures.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Single Stock Futures; CAPM; GJR-GARCH; GED; Student’s t;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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