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The Impact of Derivative Trading on the Liquidity Beta of Underlying Stocks in India

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  • M S Narasimhan
  • Shalu Kalra

Abstract

This paper examines the impact of changes in aggregate market liquidity on stocks in which derivative trading is allowed. Though the liquidity of the market declines after the introduction of derivative trading, the impact of changes in market liquidity on stocks is critical in asset pricing. We find that the negative value of liquidity beta has increased after the introduction of derivative trading, thus increasing the sensitivity of liquidity shocks on asset prices.

Suggested Citation

  • M S Narasimhan & Shalu Kalra, 2012. "The Impact of Derivative Trading on the Liquidity Beta of Underlying Stocks in India," The IUP Journal of Applied Finance, IUP Publications, vol. 18(4), pages 97-107, October.
    • Handle: RePEc:icf:icfjaf:v:18:y:2012:i:4:p:97-107
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    Cited by:

    1. Artem I. Potapov, 2023. "Assessing the Margin Requirements Impact on the Russian Futures Market Liquidity," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 5, pages 94-116, October.
    2. Zreik, Ousayna & Louhichi, Waël, 2017. "Risk sentiment and firms’ liquidity in the French market," Research in International Business and Finance, Elsevier, vol. 39(PB), pages 809-823.

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