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Year 2015, Volume: 2 Issue: 2, 0 - 0, 29.06.2015

Abstract

References

  • Aggarwal, R. (1988). Stock index futures and cash market volatility. Review of Futures Markets, 7(2), 290-299.
  • Antoniou, A., & Holmes, P. (1995). Futures trading, information and spot price volatility: evidence for the FTSE- 100 stock index futures contract using GARCH. Journal of Banking & Finance, 19(1), 117-129.
  • Antoniou, A., Holmes, P., & Priestley, R. (1998). The Effects of Stock Index Futures Trading on Stock Index
  • Volatility: An Analysis of the Asymmetric Response of Volatility to News (Digest Summary). Journal of Futures Markets, 18(2), 151-66. Baklaci, H., & Tutek, H. (2006). The impact of the futures market on spot volatility: An analysis in Turkish derivatives markets. Computational Finance and Its Applications II, 43, 237-246.
  • Board, J. and Sutcliffe, C. (1990). Information,volatility, volume, and maturity: An investigation of Stock Index
  • Futures, Review of Futures Markets, 9(3), 533–547. Bologna, P., & Cavallo, L. (2002). Does the introduction of stock index futures effectively reduce stock market volatility? Is the'futures effect'immediate? Evidence from the Italian stock exchange using GARCH. Applied
  • Financial Economics, 12(3), 183-192. Caglayan, Ebru (2006), ‘Index Futures and Spot Market Volatility: Evidence from Turkey. Working Paper Series 4/01, Westminster Service Sector Research Centre, University of Westminster, UK, ISBN 0-9552685-3-2, ISSN 1750-6336.
  • Caglayan, E. (2011). The impact of stock index futures on the Turkish spot market. Journal of Emerging Market Finance, 10(1), 73-91.
  • Chamberlain, T. W., Cheung, C. S., & Kwan, C. C. (1989). Expiration-day effects of index futures and options:
  • Some Canadian evidence. Financial Analysts Journal, 45(5), 67-71. Chen, C., & Williams, J. (1994). Triple‐witching hour, the change in expiration timing, and stock market reaction.
  • Journal of Futures Markets, 14(3), 275-292. Chow, Y. F., Yung, H. H., & Zhang, H. (2003). Expiration day effects: The case of Hong Kong. Journal of Futures Markets, 23(1), 67-86.
  • Cox, C. C. (1976). Futures trading and market information. The Journal of Political Economy, 1215-1237.
  • Danthine, J. P. (1978). Information, futures prices, and stabilizing speculation. Journal of Economic Theory, 17(1), 79
  • Drimbetas, E., Sariannidis, N., & Porfiris, N. (2007). The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market. Applied Financial Economics, 17(2), 139-148.
  • Edwards, F.R. (1988).Does futures trading increase Stock market volatility?, Financial Analysts Journal, 44(1) , 63- 69
  • Edwards, F.R. (1988). Futures trading and cash market volatility: stock index and interest rate futures, Journal of Futures Markets, 8(4), 421-439
  • Grossman, S.J. (1988). An analysis of the implications for stock and futures price volatility of program trading and dynamic hedging strategies, Journal of Business, Vol. 61, No. 3, pp.275-298.
  • Hancock, G. D. (1993). Whatever happened to the triple witching hour?. Financial Analysts Journal, 49(3), 66-72.
  • Herbst, A. F., & Maberly, E. D. (1990). Stock index futures, expiration day volatility, and the “special” Friday opening: A note. Journal of Futures Markets, 10(3), 323-325.
  • Karolyi, G. A. (1996). Stock market volatility around expiration days in Japan. J. OF DERIVATIVES.
  • Kasman, A., & Kasman, S. (2008). The impact of futures trading on volatility of the underlying asset in the Turkish stock market. Physica A: Statistical Mechanics and its Applications, 387(12), 2837-2845.
  • Froot, K.A., and A.F. Perold, 1991, New trading practices and short-run market efficiency, WP MIT.
  • Kan, A. C. (2001). Expiration-day effect: evidence from high-frequency data in the Hong Kong stock market.
  • Applied Financial Economics, 11(1), 107-118. Lee, S. B., & Ohk, K. Y. (1992). Stock index futures listing and structural change in time‐varying volatility. Journal of Futures Markets, 12(5), 493-509.
  • Nel, I., & de K Kruger, W. (2001). Equity index futures contracts and share price volatility: A South African perspective. Meditari Accountancy Research, 9(1), 217-229.
  • Pok, W. C., & Poshakwale, S. (2004). The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange. Applied Financial Economics, 14(2), 143-154.
  • Pilar, C., & Rafael, S. (2002). Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market. Applied Economics Letters, 9(2), 107-110.
  • Ross, S.A., 1989, Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy, Journal of Finance 44, 1-17.
  • Ryoo, H. J., & Smith, G. (2004). The impact of stock index futures on the Korean stock market. Applied Financial Economics, 14(4), 243-251.
  • Santoni, G. J. (1987, May): "Has Programmed Trading Made Stock Prices More Volatile?," Federal Reserve Bank of St. Louis Review, 18-2
  • Stein,J.C., 1987, Informational externalities and welfare-reducing speculation, Journal of Political Economy 95, 1123-1145.
  • Stoll, H., and Whaley, R. (1987). Program Trading and Expiration-Day Effects. Financial Analysts Journal, 43:16-27
  • Stoll, H. R., & Whaley, R. E. (1997). Expiration‐Day Effects of the All Ordinaries Share Price Index Futures:
  • Empirical Evidence and Alternative Settlement Procedures. Australian Journal of Management, 22(2), 139-174. Swidler, S., Schwartz, L., & Kristiansen, R. (1994). Option expiration day effects in small markets: Evidence from the Oslo Stock Exchange. Available at SSRN 5375.
  • Yadav, P. K., & Pope, P. F. (1994). Stock index futures mispricing: profit opportunities or risk premia?. Journal of
  • Banking & Finance, 18(5), 921-953.

THE IMPACT OF EQUITY INDEX FUTURES TRADING ON THE UNDERLYING INDEX VOLATILITY: EVIDENCE FOR THE ISE-30 STOCK INDEX FUTURES CONTRACT

Year 2015, Volume: 2 Issue: 2, 0 - 0, 29.06.2015

Abstract

The issue that futures-trading activity may result in excessive equity volatility has attracted much attention, both academic and regulatory. Many academicians have claimed that the introduction of the futures contracts will lead to an increase in the spot market volatility and destabilize the equity prices. This has also been an important concern for regulators. Many others have argued the contrary and claimed that futures trading will have stabilizing effects on spot prices. There is no theoretical answer that will resolve this debate; proper empirical investigation will give insights on this effect. Many previous empirical studies deal with the developed markets, especially with the US. The number of studies employing emerging market data is quite limited and there are only a handful of studies dealing with the Turkish market. In this study we examine the effect of futures trading on index volatility using the data from an important emerging market: Turkey. Using the Istanbul Stock Exchange 30 (ISE 30) Index data between February 2005 and April 2015, we test the hypothesis that the variance of daily returns in the futures expiration period (9 days before the expiration of the futures contract) is greater than the variance of index returns in the pre-expiration period (10-50 days prior to futures expiration date). The results of the study show that expiration period variance is not greater than pre-expiration variance.

References

  • Aggarwal, R. (1988). Stock index futures and cash market volatility. Review of Futures Markets, 7(2), 290-299.
  • Antoniou, A., & Holmes, P. (1995). Futures trading, information and spot price volatility: evidence for the FTSE- 100 stock index futures contract using GARCH. Journal of Banking & Finance, 19(1), 117-129.
  • Antoniou, A., Holmes, P., & Priestley, R. (1998). The Effects of Stock Index Futures Trading on Stock Index
  • Volatility: An Analysis of the Asymmetric Response of Volatility to News (Digest Summary). Journal of Futures Markets, 18(2), 151-66. Baklaci, H., & Tutek, H. (2006). The impact of the futures market on spot volatility: An analysis in Turkish derivatives markets. Computational Finance and Its Applications II, 43, 237-246.
  • Board, J. and Sutcliffe, C. (1990). Information,volatility, volume, and maturity: An investigation of Stock Index
  • Futures, Review of Futures Markets, 9(3), 533–547. Bologna, P., & Cavallo, L. (2002). Does the introduction of stock index futures effectively reduce stock market volatility? Is the'futures effect'immediate? Evidence from the Italian stock exchange using GARCH. Applied
  • Financial Economics, 12(3), 183-192. Caglayan, Ebru (2006), ‘Index Futures and Spot Market Volatility: Evidence from Turkey. Working Paper Series 4/01, Westminster Service Sector Research Centre, University of Westminster, UK, ISBN 0-9552685-3-2, ISSN 1750-6336.
  • Caglayan, E. (2011). The impact of stock index futures on the Turkish spot market. Journal of Emerging Market Finance, 10(1), 73-91.
  • Chamberlain, T. W., Cheung, C. S., & Kwan, C. C. (1989). Expiration-day effects of index futures and options:
  • Some Canadian evidence. Financial Analysts Journal, 45(5), 67-71. Chen, C., & Williams, J. (1994). Triple‐witching hour, the change in expiration timing, and stock market reaction.
  • Journal of Futures Markets, 14(3), 275-292. Chow, Y. F., Yung, H. H., & Zhang, H. (2003). Expiration day effects: The case of Hong Kong. Journal of Futures Markets, 23(1), 67-86.
  • Cox, C. C. (1976). Futures trading and market information. The Journal of Political Economy, 1215-1237.
  • Danthine, J. P. (1978). Information, futures prices, and stabilizing speculation. Journal of Economic Theory, 17(1), 79
  • Drimbetas, E., Sariannidis, N., & Porfiris, N. (2007). The effect of derivatives trading on volatility of the underlying asset: evidence from the Greek stock market. Applied Financial Economics, 17(2), 139-148.
  • Edwards, F.R. (1988).Does futures trading increase Stock market volatility?, Financial Analysts Journal, 44(1) , 63- 69
  • Edwards, F.R. (1988). Futures trading and cash market volatility: stock index and interest rate futures, Journal of Futures Markets, 8(4), 421-439
  • Grossman, S.J. (1988). An analysis of the implications for stock and futures price volatility of program trading and dynamic hedging strategies, Journal of Business, Vol. 61, No. 3, pp.275-298.
  • Hancock, G. D. (1993). Whatever happened to the triple witching hour?. Financial Analysts Journal, 49(3), 66-72.
  • Herbst, A. F., & Maberly, E. D. (1990). Stock index futures, expiration day volatility, and the “special” Friday opening: A note. Journal of Futures Markets, 10(3), 323-325.
  • Karolyi, G. A. (1996). Stock market volatility around expiration days in Japan. J. OF DERIVATIVES.
  • Kasman, A., & Kasman, S. (2008). The impact of futures trading on volatility of the underlying asset in the Turkish stock market. Physica A: Statistical Mechanics and its Applications, 387(12), 2837-2845.
  • Froot, K.A., and A.F. Perold, 1991, New trading practices and short-run market efficiency, WP MIT.
  • Kan, A. C. (2001). Expiration-day effect: evidence from high-frequency data in the Hong Kong stock market.
  • Applied Financial Economics, 11(1), 107-118. Lee, S. B., & Ohk, K. Y. (1992). Stock index futures listing and structural change in time‐varying volatility. Journal of Futures Markets, 12(5), 493-509.
  • Nel, I., & de K Kruger, W. (2001). Equity index futures contracts and share price volatility: A South African perspective. Meditari Accountancy Research, 9(1), 217-229.
  • Pok, W. C., & Poshakwale, S. (2004). The impact of the introduction of futures contracts on the spot market volatility: the case of Kuala Lumpur Stock Exchange. Applied Financial Economics, 14(2), 143-154.
  • Pilar, C., & Rafael, S. (2002). Does derivatives trading destabilize the underlying assets? Evidence from the Spanish stock market. Applied Economics Letters, 9(2), 107-110.
  • Ross, S.A., 1989, Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy, Journal of Finance 44, 1-17.
  • Ryoo, H. J., & Smith, G. (2004). The impact of stock index futures on the Korean stock market. Applied Financial Economics, 14(4), 243-251.
  • Santoni, G. J. (1987, May): "Has Programmed Trading Made Stock Prices More Volatile?," Federal Reserve Bank of St. Louis Review, 18-2
  • Stein,J.C., 1987, Informational externalities and welfare-reducing speculation, Journal of Political Economy 95, 1123-1145.
  • Stoll, H., and Whaley, R. (1987). Program Trading and Expiration-Day Effects. Financial Analysts Journal, 43:16-27
  • Stoll, H. R., & Whaley, R. E. (1997). Expiration‐Day Effects of the All Ordinaries Share Price Index Futures:
  • Empirical Evidence and Alternative Settlement Procedures. Australian Journal of Management, 22(2), 139-174. Swidler, S., Schwartz, L., & Kristiansen, R. (1994). Option expiration day effects in small markets: Evidence from the Oslo Stock Exchange. Available at SSRN 5375.
  • Yadav, P. K., & Pope, P. F. (1994). Stock index futures mispricing: profit opportunities or risk premia?. Journal of
  • Banking & Finance, 18(5), 921-953.
There are 36 citations in total.

Details

Journal Section Articles
Authors

Hakan Er

Wissam Al-masri This is me

Kokou Adalessossi

Publication Date June 29, 2015
Published in Issue Year 2015 Volume: 2 Issue: 2

Cite

APA Er, H., Al-masri, W., & Adalessossi, K. (2015). THE IMPACT OF EQUITY INDEX FUTURES TRADING ON THE UNDERLYING INDEX VOLATILITY: EVIDENCE FOR THE ISE-30 STOCK INDEX FUTURES CONTRACT. Journal of Economics Finance and Accounting, 2(2). https://doi.org/10.17261/Pressacademia.2015211517

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