Title: Impact of futures trading on spot market and price discovery of futures market.
Abstract: As a result of the revival of commodity futures in a big way in 2003, the nature of commodity trade in India has undergone a big change. Going by trade volume and also possibly as an identifiable influence on the price-making processes with respect to the traded commodities, both the futures market and actual merchandising have undergone a change. The disproportionately large size of the former compared to the latter underlines the financial market character of the futures trade (Kamal Nayan Kabra, 2007). The liberalisation of trade, closer economic integration of different countries of the world, deregulation of interest rate in recent years and a large fluctuation in output and growth have exposed the players in the market to different risks such as price risk, interest risk and exchange rate risk that have led to a great uncertainty at the market place. To keep pace with the globalisation, India needs to develop its financial sector along with physical trade through the introduction of derivative market. Increased volatility in asset price in the financial sector, increased integration of domestic financial sector with international financial sector demand the trading in the derivative market. In India, derivatives trading was introduced in June 2000 on National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). Soon after this, NSE introduced trading based on Standard and Poor’s CNX NIFTY-50 in June 12, 2000. This was followed by the approval in trading in options based on two indices. The trading in index options commenced in June 2001 and those in options on individual securities in July 2001. After the introduction of derivative market, there are certain changes that occur in the financial sector of the economy. These include changes in the price volatility, reduction in the risk of investors and increase in the stock market trading. Ederington (1979) Figleski (1984a, b); Chang (1985); Holmes (1995); Chou et al. (1996); Yang (2001); Floros and Vougas (2002); Pancholi and Kurkel (2003) examined the hedging effectiveness in futures market. Figleski, (1984a, b); Kalwaller et al. (1987); Harris (1989); Stoll and Whaley (1990); Hodgson Nicholas (1991); Gregory and Michael (1996); Shenbagaraman (2002); Nath (2003) concentrated on
Publication Year: 2009
Publication Date: 2009-01-01
Language: en
Type: article
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Cited By Count: 3
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