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The impact of futures trading on underlying stock index volatility: the case of the FTSE Mid 250 contract

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  • Darren Butterworth

Abstract

This paper investigates the effect of futures trading in the FTSE Mid 250 index on the underlying spot market using symmetric and asymmetric GARCH methods. Tests for the presence of asymmetries suggest a symmetric model adequately captures the response of volatility to news. Results indicate that following the onset of futures trading the quantity of information flowing into the market increased. However, the rate at which news is impounded into prices fell, with an associated rise in the persistence of information. These findings are consistent with the institutional characteristics and trading history of the FTSE Mid 250 market in the period following the onset of futures trading.

Suggested Citation

  • Darren Butterworth, 2000. "The impact of futures trading on underlying stock index volatility: the case of the FTSE Mid 250 contract," Applied Economics Letters, Taylor & Francis Journals, vol. 7(7), pages 439-442.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:7:p:439-442
    DOI: 10.1080/135048500351131
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    Cited by:

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    3. Wang, Kai-Li & Fawson, Christopher & Chen, Mei-Ling & Wu, An-Chi, 2014. "Characterizing information flows among spot, deliverable forward and non-deliverable forward exchange rate markets: A cross-country comparison," Pacific-Basin Finance Journal, Elsevier, vol. 27(C), pages 115-137.
    4. Wurm, Laura, 2021. "Strangling speculation: The effect of the 1903 Viennese futures trading ban," QUCEH Working Paper Series 21-09, Queen's University Belfast, Queen's University Centre for Economic History.
    5. George Filis & Christos Floros & Bruno Eeckels, 2011. "Option listing, returns and volatility: evidence from Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 21(19), pages 1423-1435.
    6. Chris Bilson & Tim Brailsford & Twm Evans, 2005. "The International Transmission of Arbitrage Information Across Futures Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5-6), pages 973-1000.
    7. Xiaole Wan & Zhen Zhang & Chi Zhang & Qingchun Meng, 2020. "Stock Market Temporal Complex Networks Construction, Robustness Analysis, and Systematic Risk Identification: A Case of CSI 300 Index," Complexity, Hindawi, vol. 2020, pages 1-19, July.
    8. Prachi Jain & Kiran Kumar Kotha, 2022. "Does options improve the information absorption? Evidence from the introduction of weekly index options," International Review of Finance, International Review of Finance Ltd., vol. 22(4), pages 770-776, December.
    9. 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.
    10. Ismail bin Ahmad & Fahmi bin Abdul Rahim, 2009. "International price relationship and volatility transmission between stock index and stock index futures," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 1(1), pages 61-75, April.

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