Has Programmed Trading Made Stock Prices More Volatile?

Santoni, G.J.

doi:10.20955/r.69.18-29.nfc

Cited by 36 publications

(30 citation statements)

References 6 publications

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“…Santoni (1987) finds no statistically significant change in both daily and weekly return volatility in the S&P 500 index following the introduction of index futures. However, Edwards (1988bEdwards ( , 1988a studies the daily price volatility of S&P 500 from 1972 to 1987 and finds the volatility of S&P 500 decreased significantly (excluding 1979-1982) after an introduction of index futures trading.…”

Section: Empirical Studies In Usmentioning

confidence: 86%

Index Future Trading, Spot Volatility And Market Efficiency

Zonghao¹

2014

JMS

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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.

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Section: Empirical Studies In Usmentioning

confidence: 86%

Index Future Trading, Spot Volatility And Market Efficiency

Zonghao¹

2014

JMS

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“…On the contrary, Santoni (1987) documents an inverse relation between S&P 500 index futures trading volume and volatility of the S&P 500 market index, suggesting that an increase in futures trading activities leads to a reduction in spot market volatility.…”

Section: Index Derivatives and Underlying Security Volatilitymentioning

confidence: 95%

Changes in trading volume and return volatility associated with S&P 500 index additions and deletions

Lin¹

2010

Research in Finance

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“…The results of the empirical studies analyzing the long-run impacts of futures trading on spot volatility are mixed. Santoni (1987) analyzes the S&P 500 index volatility after the introduction of index futures and reports no statistically significant changes in spot volatility. Edwards (1988a) and Edwards (1998b) studies the effect on S & P 500 and Value Line Index and concludes that S & P 500 volatility has decreased after the introduction of futures, however, there has been no significant difference in Value Line Index volatility.…”

Section: Literature Surveymentioning

confidence: 99%

The impact of equity index futures trading on the underlying index volatility: evidence for the ISE-30 stock index futures contracts

Al-Masri²,

Adalessossi³

2015

Pressacademia

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The issue that futures-trading activity may result in excessive equity volatility has attracted much attention, both academic and regulatory. Many academicians have claimed that the introduction of the futures contracts will lead to an increase in the spot market volatility and destabilize the equity prices. This has also been an important concern for regulators. Many others have argued the contrary and claimed that futures trading will have stabilizing effects on spot prices. There is no theoretical answer that will resolve this debate; proper empirical investigation will give insights on this effect. Many previous empirical studies deal with the developed markets, especially with the US. The number of studies employing emerging market data is quite limited and there are only a handful of studies dealing with the Turkish market. In this study we examine the effect of futures trading on index volatility using the data from an important emerging market: Turkey. Using the Istanbul Stock Exchange 30 (ISE 30) Index data between February 2005 and April 2015, we test the hypothesis that the variance of daily returns in the futures expiration period (9 days before the expiration of the futures contract) is greater than the variance of index returns in the pre-expiration period (10-50 days prior to futures expiration date). The results of the study show that expiration period variance is not greater than pre-expiration variance.

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Has Programmed Trading Made Stock Prices More Volatile?

Cited by 36 publications

References 6 publications

Index Future Trading, Spot Volatility And Market Efficiency

Index Future Trading, Spot Volatility And Market Efficiency

Changes in trading volume and return volatility associated with S&P 500 index additions and deletions

The impact of equity index futures trading on the underlying index volatility: evidence for the ISE-30 stock index futures contracts

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