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Impact of Equity Futures Trading on Cash Market Volatility and Information Assimilation Efficiency: Evidence from India


Affiliations
1 Assistant Professor, Department of Management, Punjab Institute of Technology, Punjab Technical University, Kapurthala, Punjab, India
2 Associate Professor & Head of Department, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar, Punjab, India
     

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Present study analyzes the impact of futures trading on cash market volatility and information dissemination efficiency both on index as well as individual stocks trading at National Stock Exchange of India. Surrogate index has been used to control the impact of other market reforms introduced in India. Returns in the cash market have been observed to be asymmetric in nature and it has been found that after introduction of futures trading in the Indian capital market, cash market volatility has decreased. It has also been found that although information assimilation efficiency in the cash market after introducing futures trading remains inefficient but the role of new information in the price discovery process has increased. Furthermore, it has been observed that both volatility and daily returns are different across various trading days of the week but both returns and volatility are highly significant around the settlement day of the futures contracts

Keywords

Conditional Volatility, Information Assimilation Efficiency, Settlement Effect, Information Spillover, Surrogate Index, Seasonality in Returns and Volatility
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  • Impact of Equity Futures Trading on Cash Market Volatility and Information Assimilation Efficiency: Evidence from India

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Authors

Kapil Gupta
Assistant Professor, Department of Management, Punjab Institute of Technology, Punjab Technical University, Kapurthala, Punjab, India
Balwinder Singh
Associate Professor & Head of Department, Department of Commerce and Business Management, Guru Nanak Dev University, Amritsar, Punjab, India

Abstract


Present study analyzes the impact of futures trading on cash market volatility and information dissemination efficiency both on index as well as individual stocks trading at National Stock Exchange of India. Surrogate index has been used to control the impact of other market reforms introduced in India. Returns in the cash market have been observed to be asymmetric in nature and it has been found that after introduction of futures trading in the Indian capital market, cash market volatility has decreased. It has also been found that although information assimilation efficiency in the cash market after introducing futures trading remains inefficient but the role of new information in the price discovery process has increased. Furthermore, it has been observed that both volatility and daily returns are different across various trading days of the week but both returns and volatility are highly significant around the settlement day of the futures contracts

Keywords


Conditional Volatility, Information Assimilation Efficiency, Settlement Effect, Information Spillover, Surrogate Index, Seasonality in Returns and Volatility

References