IDEAS home Printed from https://ideas.repec.org/a/sae/iimkoz/v6y2017i2p196-203.html
   My bibliography  Save this article

Effectiveness of Currency Futures Market in India: An Empirical Investigation

Author

Listed:
  • T. K. Dhaneesh Kumar
  • B. G. Poornima
  • P. K. Sudarsan

Abstract

This article investigates the role of currency futures market in India in the context of high volatility of Indian rupee (INR) in recent years. It examines whether the spot volatility before and after the introduction of currency futures were significantly different. It also examines the volatility causation between currency spot and futures market in India. The study considers three international currencies, namely US dollar (USD), British pound (GBP) and Euro in relation to INR for the period of 2006–2013. It made use of GARCH model framework and Granger causality test. The GARCH model results indicate that after the introduction of futures, there is less volatility for GBP and Euro but not in the case of USD. The Granger causality test reveals that USD and Euro has unidirectional causality, which means that spot causes future fluctuations, while in the case of GBP, there is bidirectional causality. The study concludes that the introduction of futures is not effective in reducing spot volatility for INR–USD but there is a marginal effect for INR–GBP and INR–Euro.

Suggested Citation

  • T. K. Dhaneesh Kumar & B. G. Poornima & P. K. Sudarsan, 2017. "Effectiveness of Currency Futures Market in India: An Empirical Investigation," IIM Kozhikode Society & Management Review, , vol. 6(2), pages 196-203, July.
  • Handle: RePEc:sae:iimkoz:v:6:y:2017:i:2:p:196-203
    DOI: 10.1177/2277975217704606
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/2277975217704606
    Download Restriction: no

    File URL: https://libkey.io/10.1177/2277975217704606?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Christian Jochum & Ms. Laura E. Kodres, 1998. "Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?," IMF Working Papers 1998/013, International Monetary Fund.
    2. Garbade, Kenneth D & Silber, William L, 1983. "Price Movements and Price Discovery in Futures and Cash Markets," The Review of Economics and Statistics, MIT Press, vol. 65(2), pages 289-297, May.
    3. Inci, Ahmet Can, 2005. "ERM effects on currency spot and futures markets," Global Finance Journal, Elsevier, vol. 16(2), pages 145-163, December.
    4. Ozer-Imer, Itir & Ozkan, Ibrahim, 2014. "An empirical analysis of currency volatilities during the recent global financial crisis," Economic Modelling, Elsevier, vol. 43(C), pages 394-406.
    5. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    6. Judge, Amrit & Reancharoen, Tipprapa, 2014. "An empirical examination of the lead–lag relationship between spot and futures markets: Evidence from Thailand," Pacific-Basin Finance Journal, Elsevier, vol. 29(C), pages 335-358.
    7. Christian Jochum & Laura Kodres, 1998. "Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies?," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 486-521, September.
    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. Priya Malhotra & Pankaj Sinha, 2024. "Balanced Funds in India Amid COVID-19 Crisis: Spreader of Financial Contagion?," IIM Kozhikode Society & Management Review, , vol. 13(1), pages 7-24, January.
    2. Syarifuddin, Ferry, 2020. "Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies," MPRA Paper 104810, University Library of Munich, Germany.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kirrane, Chris, 2018. "What Caused the Asian Currency?," MPRA Paper 93643, University Library of Munich, Germany.
    2. Arif Oduncu & Yasin Akcelik & Ergun Ermisoglu, 2013. "Reserve Options Mechanism : A New Macroprudential Tool to Limit the Adverse Effects of Capital Flow Volatility on Exchange Rates," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 13(3), pages 45-60.
    3. Antoniou, Antonios & Koutmos, Gregory & Pericli, Andreas, 2005. "Index futures and positive feedback trading: evidence from major stock exchanges," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 219-238, March.
    4. Jing Hao & Xiong Xiong & Feng He & Feng Ma, 2019. "Price Discovery in the Chinese Stock Index Futures Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(13), pages 2982-2996, October.
    5. Liwei Jin & Xianghui Yuan & Jun Long & Xiang Li & Feng Lian, 2022. "Price discovery in the CSI 300 Index derivatives markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(7), pages 1352-1368, July.
    6. Polat, Onur & Ozkan, Ibrahim, 2019. "Transmission mechanisms of financial stress into economic activity in Turkey," Journal of Policy Modeling, Elsevier, vol. 41(2), pages 395-415.
    7. Calvet, Laurent & Gonzalez-Eiras, Martín & Sodini, Paolo, 2004. "Financial Innovation, Market Participation, and Asset Prices," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(3), pages 431-459, September.
    8. Chang, Kuang-Liang & Lee, Chingnun, 2020. "The asymmetric spillover effect of the Markov switching mechanism from the futures market to the spot market," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 374-388.
    9. Pradhan, Rudra P. & Hall, John H. & du Toit, Elda, 2021. "The lead–lag relationship between spot and futures prices: Empirical evidence from the Indian commodity market," Resources Policy, Elsevier, vol. 70(C).
    10. Tremblay, Rodrigue, 2000. "Les facteurs déclencheurs des crises financières internationales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(3), pages 423-436, septembre.
    11. Yang Hu & Yang (Greg) Hou & Les Oxley, 2019. "Spot and Futures Prices of Bitcoin: Causality, Cointegration and Price Discovery from a Time-Varying Perspective," Working Papers in Economics 19/13, University of Waikato.
    12. Syarifuddin, Ferry, 2020. "Macroeconomic Consequences of Foreign Exchange Futures Market for Inflation Targeting Economies," MPRA Paper 104810, University Library of Munich, Germany.
    13. Hu, Yang & Hou, Yang Greg & Oxley, Les, 2020. "What role do futures markets play in Bitcoin pricing? Causality, cointegration and price discovery from a time-varying perspective?," International Review of Financial Analysis, Elsevier, vol. 72(C).
    14. Felipe Avileis & Mindy Mallory, 2021. "The Impact of Brazil on Global Grain Dynamics: A Study on Cross-Market Volatility Spillovers," Papers 2104.12706, arXiv.org.
    15. Bhatia, Shipra & Tuteja, Divya, 2024. "Contagion and linkages across international currencies," International Review of Financial Analysis, Elsevier, vol. 94(C).
    16. Röthig, Andreas, 2004. "Currency Futures and Currency Crises," Darmstadt Discussion Papers in Economics 136, Darmstadt University of Technology, Department of Law and Economics.
    17. Ferry Syarifuddin, 2020. "Macroeconomic Consequences Of Foreign Exchange Futures," Working Papers WP/14/2020, Bank Indonesia.
    18. Dua, Pami & Tuteja, Divya, 2016. "Financial crises and dynamic linkages across international stock and currency markets," Economic Modelling, Elsevier, vol. 59(C), pages 249-261.
    19. Philip Turner, 2012. "Summary of the discussion," BIS Papers chapters, in: Bank for International Settlements (ed.), Financial sector regulation for growth, equity and stability, volume 62, pages 141-142, Bank for International Settlements.
    20. Kutan, Ali M. & Shi, Yukun & Wei, Mingzhe & Zhao, Yang, 2018. "Does the introduction of index futures stabilize stock markets? Further evidence from emerging markets," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 183-197.

    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:sae:iimkoz:v:6:y:2017:i:2:p:196-203. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.