Impact of future trading on stock market: a study of BRIC countries

Abstract

Purpose -The purpose of this paper is to examine the impact of the future of trading on volatility as well as the efficiency of the stock market of BRIC (Brazil, Russia, India and China) countries. This study also investigates the presence of day-of-the-week effect in BRIC countries' stock market. Design/methodology/approach -This study uses closing prices of IBrx-50 for Brazil, RTSI for Russia, Nifty for India and CSI300 for China to represent the stock market of BRIC countries. The Run and ACF tests are used to see impact on market efficiency. GARCH M model is used to see the impact on volatility and day-of-the week effect. Findings -The insignificant coefficient of variance in the conditional mean equation of GARCH M implies that the market doesn't provide higher returns during the high volatility period. The results of the Run test showed that the Russian stock market became efficient after introduction of future trading. However, ACF showed no effect of introduction of future trading on autoregressiveness of stock returns. The result of GARCH M indicates that future trading led to reduction in the volatility of the Indian stock market. There are some evidences of presence of day-of-the-week effect in the Indian stock market. Practical implications -This paper will help regulators to form appropriate policies as the market would have to pay a certain price, such as loss of market efficiency, for the sake of market stabilization. This will also help investors to make investment decisions, especially investing in these indices as the existence of the significant day-of-the-week effect and the inefficiency in the stock market would be very useful for developing investment strategies. Originality/value -This paper will be useful for both investors and regulators in decision making.

Stock Market Anomalies: Evidence from Emerging BRIC Markets

“…The existence of DOW effect in China suggests the functional inefficiency of Chinese stock market. The findings of Gahlot and Datta (2012) and Parikh (2009), which suggest the presence of market inefficiency in days of the week and MOY form, respectively, contradict the finding of current study for Indian stock market which actually goes in favour of the EMH. This study also challenges the finding of Giovanis (2009) as well who find strong evidence of February effect in Russian stock market.…”

“…Empirical study by Basher and Sadorsky (2006) too provided support to the presence of DOW effect for Philippines, Pakistan, Taiwan, Argentina, Malaysia, Thailand and Turkey. Gahlot and Datta (2012) in their study on NIFTY find that highest returns on NIFTY are on Thursday and lowest returns on Tuesday for the period 1 April 1995 to 31 March 2005. To sum it up, DOW effect is a common phenomenon and observed across different countries and different types of markets.…”

Indian Derivatives Market: A Study of Impact on Volatility and Investor Perception

“…(2012) [14] and Gahlot, R., Datta,K. and Kapil, S.(2010) [3]. The results of ARCH-LM test shows the F statistics value F (5,4344) is 63.9516 which is highly significant.…”