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Unveiling market dynamics: Assessing the impact of derivatives contract redesign on market quality

Author

Listed:
  • Rahul Kumar

    (Accounting & Finance Area, Indian Institute of Management Sambalpur, Jyoti Vihar, Burla, Odisha 768019, India)

  • Prasenjit Chakrabarti

    (Accounting & Finance Area, Indian Institute of Management Ranchi, Suchana Bhawan, Meur’s Road, Ranchi, Jharkhand 834008, India)

Abstract

This paper examines the impact of upward revision of contract size on market quality. We use a natural experimental setting to investigate the changes in price volatility and trading activities after the revision of contract size. We use the fixed effect panel regression model and find out the impact of change in contract specification, that is contract size in three different time frames: short-term, medium-term and long-term. We find an increase in price volatility and trading activities in the short term. We find an increase in trading activities in the long and medium-term, whereas price volatility decreases. We conduct robustness checks using different proxies of price volatility and trading activities. We contribute to the literature of the contract design. Our study is one of the few investigating the upward revision of contract size in futures markets. This is the first report to examine the impact of changes in contract size on the market quality of single stock futures.

Suggested Citation

  • Rahul Kumar & Prasenjit Chakrabarti, 2025. "Unveiling market dynamics: Assessing the impact of derivatives contract redesign on market quality," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-28, June.
    • Handle: RePEc:wsi:ijfexx:v:12:y:2025:i:02:n:s242478632550001x
    DOI: 10.1142/S242478632550001X
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    More about this item

    Keywords

    Financial markets regulations; contract design; market quality; price volatility; stock liquidity; India;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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