The Relationship between Spot and Futures Index Contracts after the Introduction of Electronic Trading on the Johannesburg Stock Exchange (original) (raw)
Related papers
2009
One of the fundemantal problems of the Turkish financial market is high volatility and therefore the occurance of relatively shallow market structure. In recent years, the rapid capital flows seen in global markets have resulted in increasing amounts of transactions in futures markets both for investment and speculation. The modelling of any interaction between the spot and futures markets constitutes a great importance with regard to determining the direction of information flow in these markets, price formation and risk measuring. The aim of this study is to empirically investigate how index futures contracts traded in the Turkish Derivatives Exchange operating since February 2005 affect the price volatility and trade volume in the spot stock market, namely Istanbul Stock Exchange. The analyses are conducted by injecting dummies to the ARCH type models for index return and trade volume series and results indicate no statistically signigicant change in the index volatility, while t...
Effects of electronic trading on the Hang Seng Index futures market
International Review of Economics & Finance, 2005
This paper investigates the effects of the migration of the Hang Seng Index futures from open-outcry trading to electronic trading. Using trade data over a window of six months we find evidence that, after the migration, the bid-ask spread of the futures contract decreases and the contribution of the futures price in information transmission increases. Furthermore, the asymmetry in volatility spillover reduces and the open interests of the futures market become smaller. These results suggest that the anonymity in trading and the higher speed of order execution in the electronic trading system attract informed traders to the futures market and increase the information flow.
The issue that futures-trading activity may result in excessive equity volatility has attracted much attention, both academic and regulatory. Many academicians have claimed that the introduction of the futures contracts will lead to an increase in the spot market volatility and destabilize the equity prices. This has also been an important concern for regulators. Many others have argued the contrary and claimed that futures trading will have stabilizing effects on spot prices. There is no theoretical answer that will resolve this debate; proper empirical investigation will give insights on this effect. Many previous empirical studies deal with the developed markets, especially with the US. The number of studies employing emerging market data is quite limited and there are only a handful of studies dealing with the Turkish market. In this study we examine the effect of futures trading on index volatility using the data from an important emerging market: Turkey. Using the Istanbul Stock Exchange 30 (ISE 30) Index data between February 2005 and April 2015, we test the hypothesis that the variance of daily returns in the futures expiration period (9 days before the expiration of the futures contract) is greater than the variance of index returns in the pre-expiration period (10-50 days prior to futures expiration date). The results of the study show that expiration period variance is not greater than pre-expiration variance.
Research Journal of Finance and Accounting
The objective of this article is to examine the impact of stock index futures on stock markets. Of particular interest is the evidence for change in overall volatility and liquidity after the introduction of stock index futures. The impact of derivatives trading on price volatility in the underlying spot market return is examined using the exponential GARCH (EGARCH) model which was proposed by Nelson (1991). Our empirical findings support the view that introducing futures trading decreases volatility in the spot market and the speed with which market information is reflected in spot market prices. However, volatility persistence increased in the post-futures period. In the light of these findings it can be said that the speed and nature of information differ between pre-futures period and post-futures period.
Pressacademia, 2015
ABSTRACT The issue that futures-trading activity may result in excessive equity volatility has attracted much attention, both academic and regulatory. Many academicians have claimed that the introduction of the futures contracts will lead to an increase in the spot market volatility and destabilize the equity prices. This has also been an important concern for regulators. Many others have argued the contrary and claimed that futures trading will have stabilizing effects on spot prices. There is no theoretical answer that will resolve this debate; proper empirical investigation will give insights on this effect. Many previous empirical studies deal with the developed markets, especially with the US. The number of studies employing emerging market data is quite limited and there are only a handful of studies dealing with the Turkish market. In this study we examine the effect of futures trading on index volatility using the data from an important emerging market: Turkey. Using the Istanbul Stock Exchange 30 (ISE 30) Index data between February 2005 and April 2015, we test the hypothesis that the variance of daily returns in the futures expiration period (9 days before the expiration of the futures contract) is greater than the variance of index returns in the pre-expiration period (10-50 days prior to futures expiration date). The results of the study show that expiration period variance is not greater than pre-expiration variance
Journal of US-China Public Administration
This study examines the international information transmission among three major gold futures markets namely New York Mercantile Exchange in division of Commodity Exchange (COMEX), Multi Commodity Exchange (MCX), and Tokyo Commodity Exchange (TOCOM). The main concept of this research is no matter where gold futures traded, they share the same underlying asset. Two well-documented approaches, which are vector error correction model and information share, are utilized to measure the process of price discovery under this trivariate system. The uniqueness of this study is that it employs synchronous intraday time series which can mitigate the stale price problem from daily observations. The evidences indicate that the three gold futures prices are cointegrated and driven by the same fundamental factors. New arrival information disseminates efficiently among the three markets and the pricing information transmission among exchanges is very rapid. However, the lead-lag relationship among markets still exists with the dominance of COMEX gold futures as the centre of price discovery. The US gold futures market is the most efficient in processing information. Its role on price discovery and information can be attributed to COMEX's massive trading volume.
Futures Trading and Its Impact on Volatility of Indian Stock Market
Asian Journal of Finance & Accounting, 2013
Derivative products like futures and options are important instruments of price discovery, portfolio diversification and risk hedging. This paper studies the impact of introduction of index futures on spot market volatility on S&P CNX Nifty using Bi-Variate E-GARCH technique. The evidence of this model shows that the volatility spillover between spot and futures markets is uni-directional from spot to futures and spot market dominates the futures market in terms of return and volatility. The volatility persistence and clustering is found to be significant and bidirectional at 5 % level of significance. At the practical level, a better understanding of the mean and variance dynamics of the spot and futures market can improve risk management and investment decisions of the market agents. The findings have implications for policy makers, hedgers and investors. The research contributes to literature for emerging markets such as India.
The European Journal of Finance, 2009
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