We're working on a new format for chapters, and would like your opinion. Main content Side column. The debate on the impact of futures on stock market volatility is still controversial. In other words, the issue of whether the futures markets affect underlying spot markets is not widely accepted.

Some past critics of index futures agree that the introduction of stock index futures increases stock market volatility.

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Others report no significant volatility effect associated with the introduction of stock index futures. In general, the link between futures trading and stock market volatility has become very complex. Several studies have empirically examined the long-term relationship across the decades.

Most of them compare the volatility of the spot market before and after the introduction of futures trading, using econometric models.

According to Bologna and Cavallo, 1 there are two theories in the literature about the relationship between futures markets and underlying spot markets.

Index Futures Trading and Stock Market Volatility in China: A Difference-in-Difference Approach - Xie - - Journal of Futures Markets - Wiley Online Library

The first theory supports the argument that futures trading destabilises the underlying spot market by increasing its volatility. In practice, volatility increases through speculation or arbitrage strategies. Then, an increase in interest rates and the cost of capital, leading to a reduction in the value of investments, is quite possible.

Stock market index future - Wikipedia

From a financial viewpoint, the price volatility usually depends on the arrival of new information in the market. If the market is efficient, the price reflects this new information, but the literature presents arguments that futures markets increase market depth 2 and reduce spot market volatility. The introduction of a futures market and, in particular, the impact of futures on stock market volatility is a long debate. Previous studies show that the futures market leads to an increase in market depth and a decrease in volatility.

This is due to the more rapid rate at which information is reflected in prices and speculation. Other studies suggest that a decrease in cash market volatility is due to an increase in market liquidity.

Empirical studies for UK and US financial markets do not conclude clearly whether the introduction of futures stabilises or destabilises the underlying spot market. It is therefore important for practitioners to look at the link between information news and volatility. This paper examines the effect of futures trading on the volatility of the underlying spot market.

These findings are helpful to financial managers dealing with Greek stock index futures. JavaScript is currently disabled , this site works much better if you enable JavaScript in your browser. Search Options Advanced Search Search Help. Academic edition Corporate edition.

Chapter Derivatives and Hedge Funds pp Index Futures Trading, Information and Stock Market Volatility: The Case of Greece.

Abstract The debate on the impact of futures on stock market volatility is still controversial. Practical applications The introduction of a futures market and, in particular, the impact of futures on stock market volatility is a long debate. Provided by Book metrix. Reference tools Export citation EndNote. Other actions About this Book. Share Share this content on Facebook Share this content on Twitter Share this content on LinkedIn.

References and Notes 1.

Market depth is related to non-informational trading activity and provides additional information about the interaction between price volatility and trading volume. An Analysis of the Asymmetric Response of Volatility to News, Journal of Futures Markets , Vol.

Index Futures Trading, Information and Stock Market Volatility: The Case of Greece - Springer

Perpetrator of volatility or victim of regret? A noise trader is a trader who trades for pleasure or who trades on information that he or she believes is valuable but which is not useful. Title Index Futures Trading, Information and Stock Market Volatility: The Case of Greece Book Title Derivatives and Hedge Funds Book Part Part I Pages pp Copyright DOI Vougas Additional Links About this Book Topics Biochemistry, general Business Finance Industry Sectors Chemical Manufacturing Biotechnology Consumer Packaged Goods Pharma eBook Packages Biomedical and Life Sciences Editors Stephen Satchell 1 Editor Affiliations 1.

Sydney University Authors Christas Floros 2 Dimitrios V. Vougas 3 4 Author Affiliations 2. Department of Economics, Portsmouth Business School, University of Portsmouth, Portsmouth, PO1 3DE, UK 3.

Department of Economics, University of Wales Swansea, Singleton Park, Swansea, SA2 8PP, UK 4. To view the rest of this content please follow the download PDF link above. We use cookies to improve your experience with our site. Our Content Journals Books Book Series Protocols Reference Works. Part of Springer Nature.