Abstract
This paper examines the impacts of the listing of index futures trading
on spot market volatility, market efficiency and volatility asymmetric responses. To
study the effects of the introduction of index futures contracts, a modified GJR-GARCH
model has been applied to examine the structural change of conditional variances before
and after the introductions of index futures trading in S&P 500, Nikkei 225, ASX all
Ordinaries, and an equally weighted international portfolio. Additionally, the coefficient dynamic tests have been adopted to examine whether the identified impacts of
index futures are consistent over time in both the individual indices and international
portfolio. This paper finds the increases of conditional volatility and market efficiency
in both Nikkei 225 and the equally weighted international portfolio in a post-futures
period. In the U.S. and Australia, however, no significant structural change on conditional variance has been found in a post futures period. The identified increases of
volatility and market efficiency in the international portfolio are consistent over time.
Chen Zonghao. (2014) Index Futures Trading, Spot Volatility and Market Efficiency, Journal of Management Sciences, Volume 1, Issue 2.
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