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Single stock futures and their impact on market quality: Be careful what you wish for

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  • Edward Curran
  • Jack Hunt
  • Vito Mollica

Abstract

We explore the relationship between efficiency and fairness around a natural experiment resulting in the delisting of equity‐linked single stock futures on the National Stock Exchange of India. We provide evidence that the presence of a derivative improves the liquidity of the underlying but decreases the degree of fairness—proxied by manipulation likelihood. Our study highlights that a leveraged derivative entices manipulation of the underlying and that typical inhibitors of manipulation, high execution costs, are conducive to successful market abuse.

Suggested Citation

  • Edward Curran & Jack Hunt & Vito Mollica, 2021. "Single stock futures and their impact on market quality: Be careful what you wish for," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1677-1692, November.
    • Handle: RePEc:wly:jfutmk:v:41:y:2021:i:11:p:1677-1692
    DOI: 10.1002/fut.22253
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