The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange
In investigating the impact of futures trading on spot market volatility, it is not obvious to what extent the results obtained using data from well developed and highly liquid markets are applicable to emerging markets. This paper provides evidence on the impact of the introduction of futures trading on spot market volatility using data from both the underlying and non-underlying stocks in the emerging Malaysian stock market. Results show that the onset of futures trading increases spot market volatility and the flow of information to the spot market. It is found that the underlying stocks respond more to recent news, while the non-underlying stocks respond more to old news. The lead-lag and causal relationship between futures trading activity and spot market volatility is also examined. VAR results show that the impact of the previous day's futures trading activity on volatility is positive but short (only a day). This is further confirmed by Granger's causality test.
Volume (Year): 14 (2004)
Issue (Month): 2 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAFE20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAFE20|
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.:
- Lee, Chun I. & Tong, Hung Cheong, 1998. "Stock futures: the effects of their trading on the underlying stocks in Australia," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 285-301, September.
- Brad Baldauf & G. J. Santoni, 1991. "Stock price volatility: Some evidence from an ARCH model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 11(2), pages 191-200, 04.
- Bollerslev, Tim & Chou, Ray Y. & Kroner, Kenneth F., 1992. "ARCH modeling in finance : A review of the theory and empirical evidence," Journal of Econometrics, Elsevier, vol. 52(1-2), pages 5-59.
- Cox, Charles C, 1976. "Futures Trading and Market Information," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1215-37, December.
When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:14:y:2004:i:2:p:143-154. 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: (Michael McNulty)
If references are entirely missing, you can add them using this form.