Recent Advances in the Literature: Asia-Pacific Derivative Markets

Abstract

Although most researchers trace the origin of modern futures markets to the creation of the Chicago Board of Trade in the 1840s, Hamori et al. (Journal of Futures Markets, 2001, 21, 861) argue that modern futures markets originated with the establishment of the Dojima Rice Exchange in Osaka in the early 1700s. Yet, derivative markets based in the Asia–Pacific region have only recently become important from a global perspective as measured by relative trading volume. Not surprisingly, the recent sharp growth in trading volume has stimulated much research on derivatives traded on Asia–Pacific markets as well. This study discusses some of that recent research.

Lottery and bubble stocks and the cross‐section of option‐implied tail risks

“…This is perhaps the first study that uses such a wide array of variables to explain the market‐implied risks of the stock and more so in the context of an emerging market. Our study adds to the relatively scant literature on the derivatives market in India and other emerging markets (Webb, 2016). Our findings have implications for developed markets and will be useful for options traders, investors, especially skewness‐seeking investors, foreign institutional investors, and hedge funds specializing in options writing.…”

Indian equity options: Smile, risk premiums, and efficiency

“…There is limited research on Indian equity options market, as also noted by Webb (). The bulk of empirical work deals with validating the Black–Scholes model and noting the existence of a volatility smile in Nifty index options.…”

Improving liquidity in emission trading schemes

“…For example, Kumar et al (1998) show that introducing options in the stock market improves the liquidity of the underlying stocks. After reviewing the relevant studies on liquidity in the futures/spot markets in the Asia‐Pacific region, Webb (2016) concludes that day traders play an important role in supplying liquidity. Hsieh and Lin (2016) also find that individual day traders boost liquidity in the TAIFFEX, and Chiu et al (2014) show that foreign institutions and proprietary traders are major sources of liquidity.…”