Do Individual Investors on the Futures Market Induce Higher Spot Market Volatility?

2008 ◽  
Author(s):  
Christiane Goodfellow ◽  
Christian Salm
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Market Volatility ◽  
Individual Investors

Empirical Study on the Maturity Structures of the Volatility in the KOSPI200 Index and Futures Returns

2006 ◽  
Vol 14 (2) ◽  
pp. 1-23
Author(s):  
Jong In Yoon
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Individual Investors ◽  
Foreign Investors ◽  
Volatility Clustering ◽  
Maturity Structure ◽  
Maturity Date ◽  
The Individual ◽  
Bivariate Garch Model ◽  
Samuelson Hypothesis

This study analyzes the maturity structure of the volatility in the KOSPI200 index and futures returns. Using bivariate GARCH model, we obtain the empirical evidences that the maturity structure of the volatility is U-shaped unlike the well-known Samuelson effect. Remarkably. U-shaped structures are found not only in the futures market but also in the spot market These evidences imply that returns are more volatile around tile futures maturity date in both markets. Some explanations are suggested about U-shaped maturity structures. First, under Samuelson hypothesis it is possible to show that the volatilities are high around the maturity date because of the volatility clustering and the volatility spill-over. Second, we try the regression of the volatility on variables such as the proportion of the individual investors, the foreign investors, and the program trading. These variables are U-shaped or inverse U-shaped due to the remaining maturity. Only before 2000, it is found that the proportions of the foreign investors and the program trading are compatible with U-shaped volatility structures.

Volatility Spillover between the KOSPI 200 Spot and Futures Markets Using the VECM-DCC-GARCH Model

2011 ◽  
Vol 19 (3) ◽  
pp. 233-249
Author(s):  
Sang Hoon Kang ◽  
Seong-Min Yoon
Keyword(s):  
Information Flow ◽  
Futures Markets ◽  
Price Discovery ◽  
Spillover Effects ◽  
Spot Market ◽  
Futures Market ◽  
Market Volatility ◽  
Futures Contracts ◽  
Volatility Spillover ◽  
Asymmetric Volatility

This paper investigates the price discovery, volatility spillover, and asymmetric volatility spillover effects between the KOSPI 200 market and its futures contracts market. The investigation was performed using the VECM-DCC-GARCH approach. In the case of returns, we found a significant unidirectional information flow from the futures market to the spot market; this implies that the KOSPI 200 futures market plays an important role on the price discovery in the spot market. In addition, we found a strong bi-directional casualty involving the volatility interaction between the spot and futures markets; this implies that market volatility originating in the spot market will influence the volatility of the futures market and vice versa. We also found strong asymmetric volatility spillover effects between the two markets.

The Effect of Futures Market Volume on Spot Market Volatility

2001 ◽  
Vol 28 (7&8) ◽  
pp. 799-819 ◽  
Author(s):  
John Board ◽  
Gleb Sandmann ◽  
Charles Sutcliffe
Keyword(s):  
Spot Market ◽  
Futures Market ◽  
Market Volatility ◽  
Market Volume

scholarly journals PENGARUH KONTRAK FUTURES INDEKS TERHADAP VOLATILITAS UNDERLYING SPOT MARKET DI INDONESIA

2017 ◽  
Vol 21 (1) ◽  
pp. 17
Author(s):  
Sukmawati Sukamulja ◽  
Sony Fidanti
Keyword(s):  
Market Efficiency ◽  
Spot Market ◽  
Futures Market ◽  
Market Volatility ◽  
Future Contract ◽  
Underlying Asset ◽  
Futures Contract ◽  
Asset Volatility ◽  
The One ◽  
The Impact

There were some contradictory between the impacts of futures contract to the volatility of underlying asset. In the one side, some researches concluded that futures transaction affect to underlying asset volatility, but in the other side said the future contract not had impact to the volatility of underlying asset. The results were not robust yet. Futures market in Indonesia started with LQ45 futures. The LQ45 futures had been stopped in 2009, just only nine years after it was opened. And then, after seven years off, the LQ45 futures started be operated on February 1, 2016. This research want to examine the impact of futures contract to the underlying spot market volatility. Beside that, this research also want to analyze the affect of futures contract to the market efficiency during 2001-2009 with GARCH (1,1) model. The result says that there is no futures index contract impact to their underlying spot market volatility, even though there is decreasing in volatility during the testing period. This research also find that futures contract index has impact to the market sensitivity and then increase the market efficiency.

Does Commodity Derivatives Function Effectively? A lengthy Discussion

2021 ◽  
pp. 227797522098574
Author(s):  
Bhabani Sankar Rout ◽  
Nupur Moni Das ◽  
K. Chandrasekhara Rao
Keyword(s):  
Price Discovery ◽  
Spot Market ◽  
Futures Market ◽  
The Other ◽  
Volatility Spillover ◽  
Agricultural Commodities ◽  
Commodity Derivatives ◽  
Derivative Market ◽  
Negative Shock ◽  
Lengthy Discussion

The present work has been designed to intensely investigate the capability of the commodity futures market in achieving the aim of price discovery. Further, the downside of the cash and futures market and transfer of the risk to other markets has also been studied using VaR, and Bivariate EGARCH. The findings of the work point that the metal commodity derivative market helps in the efficient discovery of price in the spot market except for nickel. But, in the case of the agricultural commodities, the spot is found to be leading and thus there is no price discovery except turmeric. On the other hand, the volatility spillover is bidirectional for both agri and metal commodities except copper, where volatility spills only from futures to spot. Further, the effect of negative shock informational bias differs from commodity to commodity, irrespective of metal or agriculture.

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.

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