scholarly journals FUTURES TRADING, SPOT PRICE VOLATILITY AND STRUCTURAL BREAKS: EVIDENCE FROM ENERGY SECTOR

2021 ◽  
Vol 11 (4) ◽  
pp. 230-239
Author(s):  
Sanjeeta Shirodkar ◽  
Guntur Anjana Raju
Keyword(s):  
Structural Breaks ◽  
Price Volatility ◽  
Energy Sector ◽  
Spot Price ◽  
Futures Trading

The Effect of Futures Trading on Spot Market Liquidity

2005 ◽  
Vol 13 (1) ◽  
pp. 29-52
Author(s):  
Ki Yool Ohk
Keyword(s):  
Price Volatility ◽  
Spot Market ◽  
Market Liquidity ◽  
Stock Index ◽  
Spot Price ◽  
Spot Markets ◽  
Stock Index Futures ◽  
Trading Activity ◽  
Futures Trading ◽  
Index Futures

This study analyzes the effect of stock index futures trading on the price volatility and liquidity of spot markets, It is found that spot price volatility increases significantly after stock index futures are listed, This study partitions the trading activity series of sPOt markets into expected and unexpected components, and documents that unexpected spot-trading activities are associated with smaller sPOt price movements subsequent to the introduction of futures trading, This imolies that spot market liquidity has been increased by the intraduction of futures trading, Furthermore, this study examines the effect of futures-trading activity on the liquidity of spot markets, Results show that active futures markets enhance the liquidity of soot markets.

Impact of futures trading on volatility of spot market-a case of guar seed

2015 ◽  
Vol 75 (3) ◽  
pp. 416-431 ◽  
Author(s):  
Dinesh Kumar Sharma ◽  
Meenakshi Malhotra
Keyword(s):  
Trading Volume ◽  
Price Volatility ◽  
Futures Market ◽  
Spot Price ◽  
Futures Trading ◽  
Market Prices ◽  
Content Type ◽  
Commodity Derivatives ◽  
Spot Volatility ◽  
Guar Seed

Purpose – Guar Seed crop is ruling the Indian International business mainly due to its application as a drilling fluid in shale energy industry concentrated in the USA. One of the allegations against futures market is its possible role in increasing the volatility of underlying physical market prices. Suspension of guar seed futures contract in 2012 at National Commodity Derivatives Exchange of India (NCDEX)-India, has reignited the controversy and raised an alarm bell to peek into obscure world of Indian commodity derivatives market. Against the backdrop of fiasco in guar futures trading, the purpose of this paper is to investigate whether sudden surge in futures trading volume leads to increase in the volatility of spot market prices. Design/methodology/approach – Guar seed spot returns volatility is modeled as a GARCH (1, 1) process. Futures trading volume and open interest are segregated into expected and unexpected components. The data are analyzed from 2004 to 2011 using Augmented GARCH model to study the contemporaneous relationship between spot volatility and unexpected futures trading activity and Granger Causality test for examining the dynamic relationship between them and ascertaining causality. Findings – Augmented GARCH model reports positive relationship between unexpected futures trading volume (UTV) and spot returns volatility, and, Granger Causality flows from UTV to spot volatility. Therefore, when the level of futures trading volume increases unexpectedly, the volatility of spot prices increases pointing toward the destabilizing impact of futures trading. However, hedger’s activity, represented by open interest is not seen to have any causal/destabilizing impact on spot price volatility of guar seed. Practical implications – The study provides empirical evidence to support the concern of regulators, genuine hedgers and other traders about the presence of excessive speculation and market manipulations perpetrated through futures market that is disturbing the underlying physical market instead of strengthening it by aiding in price discovery and risk mitigation. Originality/value – There are very few studies which have empirically investigated the temporal relation between volume and volatility in Indian agricultural commodity markets. With guar seed as a special case the present study investigates statistically the impact of futures trading on spot price volatility. In light of the findings of the study, the curb imposed on guar seed futures trading in 2012 was justified.

scholarly journals Single Stock Futures Trading and Stock Price Volatility: Empirical Analysis

2009 ◽  
Vol 48 (4II) ◽  
pp. 553-563 ◽  
Author(s):  
Safi Ullah Khan ◽  
Syed Tahir Hijzi
Keyword(s):  
Stock Market ◽  
Trading Volume ◽  
Price Volatility ◽  
Futures Contracts ◽  
Sufficient Evidence ◽  
Spot Price ◽  
Return Volatility ◽  
Futures Trading ◽  
Underlying Stocks ◽  
Single Stock Futures

This study examines impact of the introduction of single stock futures contracts on the return volatility of the SSFs-listed underlying stocks. The study documents a significant decrease in return volatility for the SSFs-underlying stocks following the introduction of single stock futures contracts on the Karachi Stock Exchange. The multivariate analysis in which the spot trading volume, the futures trading volume and open interest were partitioned into news and informationless components, the estimated coefficient of expected futures volume component is statistically significant and negatively related to volatility, suggesting that equity volatility is mitigated when the expected level of futures activity is high. The findings of the decreased spot price volatility of the SSFs-underlying stocks associated with large expected futures activity is important to the debate of regarding the role of equity derivatives trading in stock market volatility. These empirical results for the Pakistan’s equity market support theories implying that equity derivates trading improves liquidity provision and depth in the equity markets, and appear to be in contrast to the theories implying that equity derivates markets provide a medium for destabilising speculation. Finally, the SSFs-listed stocks were grouped with a sample of non-SSFs stocks to examine cross-sectional data for comparing changes in return volatility. After controlling for the effects of a number of determinants of volatility, sufficient evidence is found to support that, this multivariate test, like the previous analysis, provides no evidence that the volatility of the SSFsunderlying stocks is positively related to the introduction of the single stock futures trading in the Pakistan’s stock market.

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