scholarly journals Edgeworth corrections for spot volatility estimator

2020 ◽  
Vol 164 ◽  
pp. 108809
Author(s):  
Lidan He ◽  
Qiang Liu ◽  
Zhi Liu
Keyword(s):  
Spot Volatility

scholarly journals Agricultural Commodity Trading: Is it Destabilizing Spot Markets?

2018 ◽  
Vol 43 (1) ◽  
pp. 47-57 ◽  
Author(s):  
C. P. Gupta ◽  
Sanjay Sehgal ◽  
Sahaj Wadhwa
Keyword(s):  
Causal Relationship ◽  
Trading Volume ◽  
Spot Market ◽  
Market Volatility ◽  
Future Market ◽  
Soy Oil ◽  
Open Interest ◽  
Future Trading ◽  
The Future ◽  
Spot Volatility

Executive Summary The future trading has been held responsible by certain political and interest groups of enhancing speculative trading activities and causing volatility in the spot market, thereby further spiralling up inflation. This study examines the effect of future of trading activity on spot market volatility. The study first determined the Granger causal relationship between unexpected future trading volume and spot market volatility. It then examined the Granger causal relationship between unexpected open interest and spot market volatility. The spot volatility and liquidity was modelled using EGARCH and unexpected trading volume. The expected trading volume and open interest was calculated by using the 21-day moving average, and the difference between actual and expected component was treated as the unexpected trading volume and unexpected open interest. Empirical results confirm that for chickpeas ( channa), cluster bean ( guar seed), pepper, refined soy oil, and wheat, the future (unexpected) liquidity leads spot market volatility. The causal relationship implies that trading volume, which is a proxy for speculators and day traders, is dominant in the future market and leads volatility in the spot market. The results are in conformity with earlier empirical findings — Yang, Balyeat and Leathan (2005) and Nath and Lingareddy (2008) —that future trading destabilizes the spot market for agricultural commodities. Results show that there is no causal relationship between future open interest and spot volatility for all commodities except refined soy oil and wheat. The findings imply that open interest, which is a proxy of hedging activity, is leading to volatility in spot market for refined soy oil and wheat. The results are in conformity to earlier empirical studies that there is a weak causal feedback between future unexpected open interest and volatility in spot market ( Yang et al., 2005 ). For chickpeas (channa), the increase in volatility in the spot market increases trading activity in the future market. The findings are contrary to earlier empirical evidence ( Chatrath, Ramchander, & Song, 1996 ; Yang et al., 2005 ) that increase in spot volatility reduces future trading activity. However, they are in conformity to Chen, Cuny and Haugen (1995) that increase in spot volatility increases future open interest. The results reveal that the future market has been unable to engage sufficient hedging activity. Thereby, a causal relationship exists only for future trading volume and spot volatility, and not for future open interest and spot volatility. The results have major implications for policymakers, investment managers, and for researchers as well. The study contributes to literature on price discovery, spillovers, and price destabilization for Indian commodity markets.

Does Ban on Futures trading (de)stabilise spot volatility?

2019 ◽  
Vol 9 (2) ◽  
pp. 145-166 ◽  
Author(s):  
Neharika Sobti
Keyword(s):  
Granger Causality ◽  
Price Discovery ◽  
Futures Trading ◽  
Causality Test ◽  
Content Type ◽  
Long Run ◽  
Short Run ◽  
The Impact ◽  
Spot Volatility ◽  
Non Parametric

Purpose The purpose of this paper is to ascertain the possible consequences of ban on futures trading of agriculture commodities in India by examining three critical issues: first, the author explores whether price discovery dominance changes between futures and spot in the pre-ban and post-relaunch phase both in the long run and short run. Second, the author examines the impact of ban and relaunch of futures trading on its underlying spot volatility for five sample cases of agriculture commodities (Wheat, Sugar, Soya Refined Oil, Rubber and Chana) using both parametric and non-parametric tests. Third, the author revisits the destabilization hypothesis in the light of ban on futures trading by examining the impact of unexpected component of liquidity of futures on spot volatility. Design/methodology/approach The author uses widely adopted methodology of co-integration to examine long-run relationship between spot and futures, while the short-run relationship is investigated using vector error correction model (VECM) and Granger causality to test price discovery in the pre-ban and post-relaunch phases. The second objective is explored using a combination of parametric and non-parametric tests such as Welch one-way ANOVA and Kruskal–Wallis test, respectively, to gauge the impact of ban on futures trading on spot volatility along with post hoc tests to investigate pairwise comparison of spot volatility among three phases (pre-ban, ban and post-relaunch) using Dunn Test. In addition, extensive robustness test is undertaken by adopting augmented E-GARCH model to ascertain the impact of ban and relaunch of futures trading on spot volatility. The third objective is investigated using Granger causality test between spot volatility and unexpected component of liquidity of futures estimated using Hodrick and Prescott (HP) filter to re-visit the destabilization hypothesis. Findings The author found extensive evidence for the dominance of futures market in the price discovery of agriculture commodities both in the pre-ban and post-relaunch phases in India. The ban on futures trading is found to have a destabilizing impact on spot volatility as evident from the findings of Wheat, Sugar and Rubber. In addition, it is observed that spot volatility was highest during the ban phase as compared to the pre-ban and post-relaunch phases for all four commodities barring Chana. The author found that destabilisation hypothesis holds true during the pre ban phase, while weakening of destabilization hypothesis is observed in the post-relaunch phase as unexpected futures liquidity has no role in driving the spot volatility. Originality/value This study is a novel attempt to empirically examine the potential impact of ban and relaunch of futures trading of agriculture commodities on two key market quality dimensions – price discovery and spot volatility. In addition, destabilization hypothesis is revisited to investigate the impact of futures trading on spot volatility during the pre-ban and post-relaunch period.

scholarly journals Long-Term Effects of Expiration of Derivatives on Indian Spot Volatility

2013 ◽  
Vol 2013 ◽  
pp. 1-6 ◽  
Author(s):  
Sunita Narang ◽  
Madhu Vij
Keyword(s):  
Stock Exchange ◽  
Volume Effect ◽  
Indian Market ◽  
Long Term Effects ◽  
Daily Data ◽  
Asymmetric Garch ◽  
Regression Techniques ◽  
The Impact ◽  
Spot Volatility

This paper examines the impact of expiration of derivatives on spot volatility of Indian capital market. The review of the literature shows that the previous Indian studies have covered a period of only 4–6 years after the introduction of derivative trading in India in 2000. They are unanimous about volume effect but not about return and volatility effect. This paper uses regression techniques and one symmetric and three asymmetric GARCH models, namely, TGARCH, EGARCH, and PGARCH, to evaluate the impact. It uses daily data on popular index S&P CNX Nifty of National Stock Exchange of India, during a period of more than a decade from June 12, 2000 to January 10, 2012. Findings of the study show that spot returns, volume, and volatility are high on expiration day and they build up further on the day after expiry which shows that the Indian market is weakly efficient. The expiration effect is mainly due to concentration of volumes in near-month contracts and absence of physical settlement.

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