IDEAS home Printed from https://ideas.repec.org/p/iik/wpaper/31.html
   My bibliography  Save this paper

Impact of Derivative Trading on Volatility of the Underlying: Evidence from Indian Stock Market

Author

Listed:
  • Abhilash S. Nair

    (Indian Institute of Management Kozhikode)

Abstract

The present paper examines the impact of introduction of derivatives trading on the underlying spot market volatility of seventy two scripts using symmetric and asymmetric GARCH methods. To separate the effect of market pervasive factors influencing volatility, return on NSE nifty is included in the mean equation. Further, in order to capture the impact that introduction of derivatives has had on the volatility of the underlying, a dummy variable which takes up value zero pre introduction of derivatives and one post introduction is included while specifying the volatility dynamics. The results indicate the existence of asymmetric response to new information. Further, the results hint at an increase in the efficiency of processing new information. Overall, there is a strong evidence of a reduction of volatility after the introduction of derivatives trading.

Suggested Citation

  • Abhilash S. Nair, 2008. "Impact of Derivative Trading on Volatility of the Underlying: Evidence from Indian Stock Market," Working papers 31, Indian Institute of Management Kozhikode.
    • Handle: RePEc:iik:wpaper:31
    as

    Download full text from publisher

    File URL: https://iimk.ac.in/websiteadmin/FacultyPublications/Working%20Papers/31fullp.pdf?t=10
    File Function: First version, 2016
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hiremath, Gourishankar S, 2009. "Effects of Option Introduction on Price and Volatility of Underlying Assets - A Review," MPRA Paper 46512, University Library of Munich, Germany.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iik:wpaper:31. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sudheesh Kumar (email available below). General contact details of provider: https://edirc.repec.org/data/iikmmin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.