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A Study on Effectiveness of Equity Derivatives in Cash Market Segment in India

Author

Listed:
  • S.Dinesh

    (Assistant Professor, Department of Management Studies, Sri Jayaram Engineering College, Cuddaore. India)

  • R.Arivazhagan

    (Assistant Professor, School of Management, SRM University, Kattankulathur, Chennai, India)

Abstract

One of the most significant events in the securities markets has been the development and expansion of financial derivatives. Derivative products like futures and options on Indian stock markets have become important instruments of price discovery, portfolio diversification and risk hedging in recent times. The empirical analysis points towards a decline in spot market volatility after the introduction of index futures due to increased impact of recent news and reduced effect of uncertainty originating from the old news. However, further investigation also reveals that the market wide volatility has fallen during the period under consideration. whether the introduction of index futures per se has been instrumental in reducing the spot market volatility or the volatility has fallen in line with general fall in market wide volatility.

Suggested Citation

  • S.Dinesh & R.Arivazhagan, 2011. "A Study on Effectiveness of Equity Derivatives in Cash Market Segment in India," Indian Journal of Commerce and Management Studies, Educational Research Multimedia & Publications,India, vol. 2(5), pages 131-141, July.
    • Handle: RePEc:aii:ijcmss:v:2:y:2011:i:5:p:131-141
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    References listed on IDEAS

    as
    1. Brown, Stephen J. & Warner, Jerold B., 1985. "Using daily stock returns : The case of event studies," Journal of Financial Economics, Elsevier, vol. 14(1), pages 3-31, March.
    2. Athanassiou, Emmanuel & Kollias, Christos & Syriopoulos, Theodore, 2006. "Dynamic volatility and external security related shocks: The case of the Athens Stock Exchange," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 16(5), pages 411-424, December.
    3. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    4. Pierluigi Bologna & Laura Cavallo, 2002. "Does the introduction of stock index futures effectively reduce stock market volatility? Is the 'futures effect' immediate? Evidence from the Italian stock exchange using GARCH," Applied Financial Economics, Taylor & Francis Journals, vol. 12(3), pages 183-192.
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