Do `speculative traders' increase Stock Price Volatility? Empirical evidence from the Bombay Stock Exchange
In India there existed, until recently, a form of highly leveraged margin trading called the Badla system, for certain stocks categorized as group A stocks. In March of 1994, the Securities and Exchange Board of India (SEBI) has effectively banned the facility blaming it for causing "excessive speculation". We study the effect of badla trading on stock return volatility by comparing the daily data from 1992 for group A and a matched sample of group B stocks. After controlling for other factors such as trading frequency, the average price level and the market capitalization of the firms, we find that the residual variance is actually lower for the group A stocks. Also, variance ratio tests indicate, that after accounting for other factors, no differences in the magnitude of price reversals (serial correlation) for both groups of stocks. Hence, SEBI's decision does not seem justified on economic grounds.
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.:
- Hsieh, David A & Miller, Merton H, 1990. " Margin Regulation and Stock Market Volatility," Journal of Finance, American Finance Association, vol. 45(1), pages 3-29, March.
- Hardouvelis, Gikas A, 1990.
"Margin Requirements, Volatility, and the Transitory Components of Stock Prices,"
American Economic Review,
American Economic Association, vol. 80(4), pages 736-762, September.
- Hardouvelis, G.A., 1988. "Margin Requirements, Volatility, And The Transitory Component Of Stock Prices," Papers fb-_88-38, Columbia - Graduate School of Business.
- Gikas A. Hardouvelis, 1989. "Margin requirements, volatility and the transitory component of stock prices," Research Paper 8909, Federal Reserve Bank of New York.
- Gikas A. Hardouvelis, 1988. "Margin requirements, volatility, and the transitory component of stock prices," Research Paper 8818, Federal Reserve Bank of New York.
- Fama, Eugene F & French, Kenneth R, 1988. "Permanent and Temporary Components of Stock Prices," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 246-273, April.
- Venkat Eleswarapu & Chandrasekar Krishnamurti, 1995. "Liquidity, stock returns and ownership structure: an empirical study of the BSE," Finance 9507005, EconWPA.
- Conrad, Jennifer, 1989. " The Price Effect of Option Introduction," Journal of Finance, American Finance Association, vol. 44(2), pages 487-498, June.
- Detemple, Jerome & Jorion, Philippe, 1990. "Option listing and stock returns : An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 14(4), pages 781-801, October. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:9507006. 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: (EconWPA)
If references are entirely missing, you can add them using this form.