Impact of single stock futures trading on stock market volatility
This paper analyses the impact of trading single stock futures on stock market volatility. Specifically, it investigates the effect of trading single stock futures on individual stock return volatility. In addition, it aims to identify any presence of volatility feedback which is an asymmetric effect. This is based on an EGARCH model. The paper uses India stock market data on stocks from the information technology, banking, oil and gas and the consumer sectors. Eight stocks are chosen as result of ranking the stocks with single stock futures contracts based on market capitalization. First, the stocks are tested for ARCH effects which results into dropping the ITC stock. Individual EGARCH models are run followed by an extraction of the conditional volatility values. A regression is ran based on the stock returns against a dummy variable representing pre/post futures trading and the conditional volatility values. Subsequently, diagnostics tests are run for each of the EGARCH models. WIPRO displays the most conclusive results as a result of passing the model diagnostic test while the stock with the most inconclusive results was Tata Motors. Based on these results, it is evident that some of the stock returns volatility was affected by futures trading while for other stocks, there was an insignificant effect or no effect.
Showing items related by title, author, creator and subject.
An investigation of the evolving stock market efficiency in the Nairobi Stock Exchange for the period 2001-2010 Wainaina, Eva (Strathmore University, 2012)This paper conducts a number of statistical tests to investigate the weak form efficiency of the Nairobi Stock Exchange (NSE) and analyze for any change in its pricing efficiency after the introduction of several capital ...
Stock splits and their effect on share prices : study of firms listed at the Nairobi stock exchange Munyao, John Mwendwa (2012-02-27)The relationship between stock splits and stock prices has been the subject of continuing interest to economists and practitioners. The reaction occurring after the announcement, however, has not been fully understood and ...