Analyzing the Impact of CNX Nifty Index Futures on the Volatility of S&P CNX Nifty Index

Authors

  •   P. Karthikeyan Assistant Professor (Sr. Grade), School of Management Studies, Kongu Engineering College, Perundurai, Erode - 638 052, Tamil Nadu
  •   P. Karthika Assistant Professor, Department of Management Studies, MPNMJ Engineering College, Chennimalai, Erode - 638 112, Tamil Nadu

Keywords:

Nifty

, Nifty Futures, Volatility, GARCH, Descriptive Analysis

C22

, G10, G15, G17

Paper Submission Date

, October 27, 2016, Paper sent back for Revision, December 5, Paper Acceptance Date, December 26, 2016.

Abstract

Volatility plays an important role in the stock market. Investment decisions are made based on the volatility, apart from other significant factors like price, volume traded, liquidity, etc. Many new instruments have been introduced in the Indian stock market in the recent years to satisfy the needs of the investors and to enhance market efficiency. Index futures trading is one such instrument introduced in the year 2000 to reduce the systematic risk, improve investment strategy, and to achieve more efficient price discovery. Despite a continuous increase in the turnover of the index, futures trading raises the question, whether the equity market volatility increased or not due to the introduction of index futures. So, the present study examined the effect of futures trading on volatility of CNX Nifty. The study period was divided into pre-futures period and post-futures period. GARCH model was used to measure the volatility of CNX Nifty returns in pre-future period and post-future period separately. The results of the study indicated that introduction of index futures trading reduced CNX nifty volatility.

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Published

2016-12-01

How to Cite

Karthikeyan, P., & Karthika, P. (2016). Analyzing the Impact of CNX Nifty Index Futures on the Volatility of S&P CNX Nifty Index. Indian Journal of Research in Capital Markets, 3(4), 8–20. Retrieved from https://indianjournalofcomputerscience.com/index.php/ijrcm/article/view/109296

Issue

Volume 3, Issue 4, October-December 2016

Section

Articles

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