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Does options improve the information absorption? Evidence from the introduction of weekly index options

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  • Prachi Jain
  • Kiran Kumar Kotha

Abstract

This paper empirically examines the effect of weekly options introduction on the benchmark index of Indian stock market, NIFTY50. The paper evaluates the possible stabilizing or destabilizing nature of impact on underlying volatility focusing on the relation between information and volatility using GARCH framework. The results indicate that the onset of weekly index options has improved the information assimilation and reduced the persistence of old information on volatility. Further, similar changes are not evident on a control index, NIFTY NEXT50. Overall, the results indicate an increase in market efficiency with weekly index options trading.

Suggested Citation

  • Prachi Jain & Kiran Kumar Kotha, 2022. "Does options improve the information absorption? Evidence from the introduction of weekly index options," International Review of Finance, International Review of Finance Ltd., vol. 22(4), pages 770-776, December.
    • Handle: RePEc:bla:irvfin:v:22:y:2022:i:4:p:770-776
    DOI: 10.1111/irfi.12372
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    References listed on IDEAS

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    1. Grossman, Sanford J, 1988. "An Analysis of the Implications for Stock and Futures Price Volatility of Program Trading and Dynamic Hedging Strategies," The Journal of Business, University of Chicago Press, vol. 61(3), pages 275-298, July.
    2. Stein, Jeremy C, 1987. "Informational Externalities and Welfare-Reducing Speculation," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1123-1145, December.
    3. Darren Butterworth, 2000. "The impact of futures trading on underlying stock index volatility: the case of the FTSE Mid 250 contract," Applied Economics Letters, Taylor & Francis Journals, vol. 7(7), pages 439-442.
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