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Impact of future trading on stock market: a study of BRIC countries

Listed author(s):
  • Ruchika Gahlot
Registered author(s):

    Purpose - The purpose of this paper is to examine the impact of the future of trading on volatility as well as the efficiency of the stock market of BRIC (Brazil, Russia, India and China) countries. This study also investigates the presence of day-of-the-week effect in BRIC countries' stock market. Design/methodology/approach - This study uses closing prices of IBrx-50 for Brazil, RTSI for Russia, Nifty for India and CSI300 for China to represent the stock market of BRIC countries. The Run and ACF tests are used to see impact on market efficiency. GARCH M model is used to see the impact on volatility and day-of-the week effect. Findings - The insignificant coefficient of variance in the conditional mean equation of GARCH M implies that the market doesn't provide higher returns during the high volatility period. The results of the Run test showed that the Russian stock market became efficient after introduction of future trading. However, ACF showed no effect of introduction of future trading on autoregressiveness of stock returns. The result of GARCH M indicates that future trading led to reduction in the volatility of the Indian stock market. There are some evidences of presence of day-of-the-week effect in the Indian stock market. Practical implications - This paper will help regulators to form appropriate policies as the market would have to pay a certain price, such as loss of market efficiency, for the sake of market stabilization. This will also help investors to make investment decisions, especially investing in these indices as the existence of the significant day-of-the-week effect and the inefficiency in the stock market would be very useful for developing investment strategies. Originality/value - This paper will be useful for both investors and regulators in decision making.

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    Article provided by Emerald Group Publishing in its journal Studies in Economics and Finance.

    Volume (Year): 29 (2012)
    Issue (Month): 2 (June)
    Pages: 118-132

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    Handle: RePEc:eme:sefpps:v:29:y:2012:i:2:p:118-132
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    1. Chris Brooks & Gita Persand, 2001. "Seasonality in Southeast Asian stock markets: some new evidence on day-of-the-week effects," Applied Economics Letters, Taylor & Francis Journals, vol. 8(3), pages 155-158.
    2. Syed Basher & Perry Sadorsky, 2006. "Day-of-the-week effects in emerging stock markets," Applied Economics Letters, Taylor & Francis Journals, vol. 13(10), pages 621-628.
    3. Richard A. Ajayi & Seyed Mehdian & Mark J. Perry, 2004. "The Day-of-the-Week Effect in Stock Returns : Further Evidence from Eastern European Emerging Markets," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 40(4), pages 53-62, July.
    4. Riza Demirer & M. Baha Karan, 2002. "An Investigation of the Day-of-the-Week Effect on Stock Returns in Turkey," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 38(6), pages 47-77, December.
    5. Jinghan Cai & Yuming Li & Yuehua Qi, 2006. "The Day-of-the-Week Effect: New Evidence from the Chinese Stock Market," Chinese Economy, M.E. Sharpe, Inc., vol. 39(2), pages 71-88, April.
    6. Paul Draper & Krishna Paudyal, 2002. "Explaining Monday Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(4), pages 507-520.
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