IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/9507006.html
   My bibliography  Save this paper

Do `speculative traders' increase Stock Price Volatility? Empirical evidence from the Bombay Stock Exchange

Author

Listed:
  • Venkat Eleswarapu
  • Chandrasekar Krishnamurti

Abstract

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.

Suggested Citation

  • Venkat Eleswarapu & Chandrasekar Krishnamurti, 1995. "Do `speculative traders' increase Stock Price Volatility? Empirical evidence from the Bombay Stock Exchange," Finance 9507006, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:9507006
    Note: Postscript cover.ps and main.ps, pages: 23. Also available as:
    as

    Download full text from publisher

    File URL: http://econwpa.repec.org/eps/fin/papers/9507/9507006.ps.gz
    Download Restriction: no

    File URL: http://econwpa.repec.org/eps/fin/papers/9507/9507006.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. 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.
    3. 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.
    4. Venkat Eleswarapu & Chandrasekar Krishnamurti, 1995. "Liquidity, stock returns and ownership structure: an empirical study of the BSE," Finance 9507005, EconWPA.
    5. Conrad, Jennifer, 1989. " The Price Effect of Option Introduction," Journal of Finance, American Finance Association, vol. 44(2), pages 487-498, June.
    6. 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)

    Citations

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


    Cited by:

    1. Jamshed Y. Uppal & Inayat U. Mangla, 2006. "Regulatory Response to Market Volatility and Manipulation: A Case Study of Mumbai and Karachi Stock Exchanges," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 11(2), pages 79-105, Jul-Dec.
    2. Jamshed Y. Uppal & Inayat U. Mangla, 2006. "Market Volatility, Manipulation, and Regulatory Response: A Comparative Study of Bombay and Karachi Stock Markets," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 1071-1083.
    3. Ajay Shah, 1995. "The impact of speculation upon volatility and market efficiency: The badla experience on the BSE," Finance 9507002, EconWPA.
    4. Iqbal, Javed, 2008. "Stock Market in Pakistan: An Overview," MPRA Paper 11868, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • G - Financial Economics

    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: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). General contact details of provider: http://econwpa.repec.org .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.