Post by Sapphire Capital on Oct 30, 2008 22:53:14 GMT 4
Impact of Futures Trading Activity on Stock Price Volatility of NSE Nifty Stock Index
Sathya Swaroop Debasish
The Icfai University Journal of Derivatives Markets, Vol. 5, No. 4, pp. 75-89, October 2008
Abstract:
This paper attempts an empirical examination of effect of futures trading activity on the jump volatility of the stock market by taking a case of NSE Nifty stock index. Two alternative measures of the intensity of futures trading activity employed are the monthly stock index futures trading volume and the monthly open interest in the NSE Nifty index futures contract. A span period of eight years from June 2000 to May 2007 for monthly data is used. Using the FPE/multivariate Granger causality modeling technique, this study examines whether activities in the futures market and other relevant factors have Granger-caused jump volatility of stock prices. The macroeconomic variable used in the study are volatility of the term structure of interest rates; volatility of the NSE Junior index (proxy index with no futures trading); volatility in the risk premium; volatility of the inflation rate; and volatility of the industrial production index. The study finds that futures trading activity (measured in both trading volume and open interest) is not a force behind the episodes of jump volatility. Moreover, the volatility of other macroeconomic variables, such as inflation and risk premium, are not responsible for the volatility in stock prices of NSE Nifty.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1277826
Sathya Swaroop Debasish
The Icfai University Journal of Derivatives Markets, Vol. 5, No. 4, pp. 75-89, October 2008
Abstract:
This paper attempts an empirical examination of effect of futures trading activity on the jump volatility of the stock market by taking a case of NSE Nifty stock index. Two alternative measures of the intensity of futures trading activity employed are the monthly stock index futures trading volume and the monthly open interest in the NSE Nifty index futures contract. A span period of eight years from June 2000 to May 2007 for monthly data is used. Using the FPE/multivariate Granger causality modeling technique, this study examines whether activities in the futures market and other relevant factors have Granger-caused jump volatility of stock prices. The macroeconomic variable used in the study are volatility of the term structure of interest rates; volatility of the NSE Junior index (proxy index with no futures trading); volatility in the risk premium; volatility of the inflation rate; and volatility of the industrial production index. The study finds that futures trading activity (measured in both trading volume and open interest) is not a force behind the episodes of jump volatility. Moreover, the volatility of other macroeconomic variables, such as inflation and risk premium, are not responsible for the volatility in stock prices of NSE Nifty.
papers.ssrn.com/sol3/papers.cfm?abstract_id=1277826