Financial Derivatives and Spot Market Volatility

Abstract

This study is made to examine the empirical relationship between derivative products like index futures, index options, stock options at futures and the Nifty spot market volatility. There are two contradicting schools of thoughts with regard to this: one advocates that the derive products demobilize the spot market, while the other opposes this. Ever since the introduction of derivative products in various markets all over the world, numerous studies have been carried out upon the effects of futures and options listing on cash market volatility. The study focuses on capturing the impact of the reduction of denies trading on spot market volatility, in the Indian market. The empirical evidence is mixed and the results suggest that there has been an enhancement in the volatility of spot-market index in the post-derivatives period.