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Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market

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  • Corredor Pilar
  • Santamaria Rafael

Abstract

This paper analyses the effect of the introduction of derivatives (futures and options) in the Spanish market on the volatility and on the trading volume of the underlying index. The period analysed covers from October 1990 to December 1994. To study this effect, a GJR model is used. It is found, that although the asymmetry coefficient has increased, the conditional volatility of the underlying index declines after derivative markets are introduced. The trading volume of Ibex-35 increases significantly. Consequently, the introduction of the derivative contracts in Spain confirms a decrease in uncertainty in the underlying market and an increase in liquidity, which possibly enhances their efficiency.

Suggested Citation

  • Corredor Pilar & Santamaria Rafael, 2002. "Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market," Applied Economics Letters, Taylor & Francis Journals, vol. 9(2), pages 107-110.
  • Handle: RePEc:taf:apeclt:v:9:y:2002:i:2:p:107-110
    DOI: 10.1080/13504850110049441
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    Cited by:

    1. Nikolaos Sariannidis & Ioannis Koskosas & Nikos Kartalis & George Konteos, 2009. "Macroeconomic effects on D.J.S.I.-World Returns," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece, vol. 2(2), pages 95-110, December.
    2. Shaen Corbet & Cian Twomey, 2014. "Have Exchange Traded Funds Influenced Commodity Market Volatility?," International Journal of Economics and Financial Issues, Econjournals, vol. 4(2), pages 323-335.
    3. Nikolaos Sariannidis & Evangelos Drimbetas, 2008. "Impact of international volatility and the introduction of Individual Stock Futures on the volatility of a small market," European Research Studies Journal, European Research Studies Journal, vol. 0(3), pages 119-119.
    4. Evangelos Drimbetas & Nikolaos Sariannidis & Nicos Porfiris, 2007. "The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market," Applied Financial Economics, Taylor & Francis Journals, vol. 17(2), pages 139-148.
    5. Kasman, Adnan & Kasman, Saadet, 2008. "The impact of futures trading on volatility of the underlying asset in the Turkish stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(12), pages 2837-2845.

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