...Derivatives Trading and Its Impact on the Volatility of NSE, India GEL : G10, G14, G20, G19 ABSTRACT This article examines the impact of introduction of financial derivatives trading on the volatility of Indian stock market (an emerging stock market). It examines the theme that the introduction of derivatives in the stock market in India would reduce the volatility (risk) in the stock market. NSE Nifty 50 index has been used as a proxy of stock market return. ARCH/GARCH technique has been employed in the analysis. The conditional volatility of interday market returns before and after the introduction of derivatives products are estimated with the (GARCH) model. The Finding suggests that derivatives trading has reduced the volatility. Executive Summary Derivatives trading in the stock market have been a subject of enthusiasm of research in the field of finance the most desired instruments that allow market participants to manage risk in the modern securities trading are known as derivatives. The derivatives are defined as the future contracts whose value depends upon the underlying assets. If derivatives are introduced in the stock market, the underlying asset may be anything as component of stock market like, stock prices or market indices, interest rates, etc. The main logic behind derivatives trading is that derivatives reduce the risk by providing an additional channel to invest with lower trading cost and it facilitates the investors to extend their settlement...
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...The National Stock Exchange (NSE) is India's leading stock exchange covering various cities and towns across the country. NSE was set up by leading institutions to provide a modern, fully automated screen-based trading system with national reach. The Exchange has brought about unparalleled transparency, speed & efficiency, safety and market integrity. It has set up facilities that serve as a model for the securities industry in terms of systems, practices and procedures. NSE has played a catalytic role in reforming the Indian securities market in terms of microstructure, market practices and trading volumes. The market today uses state-of-art information technology to provide an efficient and transparent trading, clearing and settlement mechanism, and has witnessed several innovations in products & services viz. demutualisation of stock exchange governance, screen based trading, compression of settlement cycles, dematerialisation and electronic transfer of securities, securities lending and borrowing, professionalisation of trading members, fine-tuned risk management systems, emergence of clearing corporations to assume counterparty risks, market of debt and derivative instruments and intensive use of information technology. Our Mission NSE's mission is setting the agenda for change in the securities markets in India. The NSE was set-up with the main objectives of: * establishing a nation-wide trading facility for equities, debt instruments and hybrids, *...
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...INDIAN DERIVATIVES MARKETS 1 Asani Sarkar 1 I gratefully acknowledge the assistance of Arkadev Chatterjea, Neel Krishnan, Golaka C. Nath and V. Soundararajan in the preparation of this article. The views expressed in this article are mine alone, and do not necessarily reflect those of the Federal Reserve Bank of New York, or the Federal Reserve System. Derivatives OUP 1 1. Rise of Derivatives The global economic order that emerged after World War II was a system where many less developed countries administered prices and centrally allocated resources. Even the developed economies operated under the Bretton Woods system of fixed exchange rates. The system of fixed prices came under stress from the 1970s onwards. High inflation and unemployment rates made interest rates more volatile. The Bretton Woods system was dismantled in 1971, freeing exchange rates to fluctuate. Less developed countries like India began opening up their economies and allowing prices to vary with market conditions. Price fluctuations make it hard for businesses to estimate their future production costs and revenues. 2 Derivative securities provide them a valuable set of tools for managing this risk. This article describes the evolution of Indian derivatives markets, the popular derivatives instruments, and the main users of derivatives in India. I conclude by assessing the outlook for Indian derivatives markets in the near and medium term. 2. Definition and Uses of Derivatives A derivative security...
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...Derivative Market – A Case Study on NSE A Report Submitted as per the curriculum of the Master in Business Administration Under Biju Patnaik University of Technology, Rourkela, Orissa. By L Rama kumari Roll No.: 200960712 Regd. No.: 0906202013 [pic] March 2011 Under the Guidance of Mr. Shom Prasad Das NATIONAL INSTITUTE OF SCIENCE & TECHNOLOGY Palur Hills, Berhampur- 761008, Orissa, India DECLARATION I, L rama kumari, student of 2009-11 batch of NIST, Berhampur do here by declare that the report entitled “Derivative Market :A Case Study on NSE” that has been submitted by me as a partial fulfillment of the degree of MBA. This report is my own work and no part of this project has been ever submitted by me for any other purpose. I declare that the work has been carried out to the best of my knowledge and belief and according to my capacity and capability. Date: Place: L Rama kumari ACKNOWLEDGEMENT I would like to take this opportunity to thank all those individuals whose valuable contribution in a direct or indirect manner has gone into the making of this dissertation a tremendous learning experience for me. I take this privilege to express my heartfelt gratitude to our Hon. Director Prof. Sangram Mudali, Hon. Batch co-coordinator Mr.Chinmaya Sahu for encouraging doing this dissertation as a part of curriculum. I would like to express sincerely my deep...
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...Financial Services & Management Research Vol.1 Issue 11, November 2012, ISSN 2277 3622 Online available at www.indianresearchjournals.com INDIAN CURRENCY FUTURES: AN ANALYTICAL STUDY OF ITS PERFORMANCE DR. DEVAJIT MAHANTA* * Vice President-Benzcom Consulting Pvt. Ltd. 3A-Oberon Appartement, 6-Lamb Road Ambari, Guwahati-781001, Assam, India ABSTRACT Since its inspection in 2008, currency derivative trade in India had experienced explosive growth, both in volumes and value over the years across all the four currencies contracts that were in operation in INRUSD, INRGBP, INREUR and INRJPY. However in terms of the open interest currency derivatives trade in MCX is more as compared to the NSE. By consider both stock and commodity exchanges for launching currency futures contracts government of India has done a commendable job which is expected to increase the number of quality players, introduce healthy competition and boost trading volumes of Indian currency futures. The global markets (mainly USA) become active only after Indian markets close at 5.00 pm and as a result there is an evident fear about the risks associated with overnight fluctuations in the currency pair. Therefore the functioning as well as the profitability in Indian currency futures is effected by the current performance of the international currency futures market. It is imperative that any evaluation, projection on Indian currency futures market should be undertaken keeping the international market in perspective...
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...A PROJECT REPORT ON “Analysis of derivative segment (Future & Options Market) of capital market” SUBMITTED BY: RAVINDER SINGH NEGI NRS/011304 In the partial fulfillment of the requirement as per THE INSTITUTE OF COST AND WORKS ACCOUTANT OF INDIA Institute of Cost and Works accountant of India Delhi Office 3, Institutional Area Lodhi Road, New Delhi - 110003 Phones: 011-24622156, 24521492 Fax: 011-43583642, 24622156, 24618645 DECLARATION I hereby declare that the Project report has been prepared by me during the year 2011. In partial fulfillment of the requirement for the award of the degree of Institute of Cost and Works Accountant of India (NIRC). Ravinder Singh Negi Place:--New Delhi Date:--...
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...Financial Services & Management Research Vol.1 Issue 11, November 2012, ISSN 2277 3622 Online available at www.indianresearchjournals.com INDIAN CURRENCY FUTURES: AN ANALYTICAL STUDY OF ITS PERFORMANCE DR. DEVAJIT MAHANTA* * Vice President-Benzcom Consulting Pvt. Ltd. 3A-Oberon Appartement, 6-Lamb Road Ambari, Guwahati-781001, Assam, India ABSTRACT Since its inspection in 2008, currency derivative trade in India had experienced explosive growth, both in volumes and value over the years across all the four currencies contracts that were in operation in INRUSD, INRGBP, INREUR and INRJPY. However in terms of the open interest currency derivatives trade in MCX is more as compared to the NSE. By consider both stock and commodity exchanges for launching currency futures contracts government of India has done a commendable job which is expected to increase the number of quality players, introduce healthy competition and boost trading volumes of Indian currency futures. The global markets (mainly USA) become active only after Indian markets close at 5.00 pm and as a result there is an evident fear about the risks associated with overnight fluctuations in the currency pair. Therefore the functioning as well as the profitability in Indian currency futures is effected by the current performance of the international currency futures market. It is imperative that any evaluation, projection on Indian currency futures market should be undertaken keeping the international market in perspective...
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...E-COMMERCE IN SECURITY MARKET (Source: Most of the Data & charts from NSE website) A) ABOUT E-COMMERCE World Trade Organisation (WTO) defines E-Commerce as “the production, distribution, marketing, sale or delivery of goods and services by electronic means”. The strategic benefit of making a business ‘e-commerce enabled’, is that it helps reduce the delivery time, labour cost and the cost incurred in the following areas: ➢ Document preparation ➢ Error detection and correction ➢ Reconciliation ➢ Mail preparation ➢ Telephone calling ➢ Data entry ➢ Overtime ➢ Supervision expenses Further, it enables - ➢ Easy reach to a fast growing online community ➢ Unlimited shelf place for products and services ➢ Fuse the global geographical and time zone boundaries ➢ Reach national and global markets at low operating costs The sudden spurt in growth of e-commerce in India is felt due to the following favourable factors: ➢ Rapidly increasing Internet user base ➢ Technology advancements such as VOIP (Voice-over-IP) have bridged the gap between buyers and sellers online ➢ The emergence of blogs as an avenue for information dissemination and two-way communication for online retailers and E-Commerce vendors ➢ Improved fraud prevention technologies that offer a safe and secure business environment and help prevent credit card frauds, identity thefts and phishing ➢ Longer reach - Consumers in the Tier II & Tier III cities...
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...1. INTRODUCTION TO DERIVATIVES While, trading in derivatives products has grown tremendously in recent times, the earliest evidence of these types of instruments can be traced back to ancient Greece. Even though derivatives have been in existence in some form or the other since ancient times, the advent of modern day derivatives contracts is attributed to farmers’ need to protect themselves against a decline in crop prices due to various economic and environmental factors. Thus, derivatives contracts initially developed in commodities. The first “futures” contracts can be traced to the Yodoya rice market in Osaka, Japan around 1650. The origin of derivatives can be traced back to the need of farmers to protect themselves against fluctuations in the price of their crop. From the time it was sown to the time it was ready for harvest, farmers would face price uncertainty. Through the use of simple derivative products, it was possible for the farmer to partially or fully transfer price risks by locking-in asset prices. These were simple contracts developed to meet the needs of farmers and were basically a means of reducing risk. A farmer who sowed his crop in June faced uncertainty over the price he would receive for his harvest in September. In years of scarcity, he would probably obtain attractive prices. However, during times of oversupply, he would have to dispose off his harvest at a very low price. Clearly this meant that the farmer and his family were exposed...
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...24, No. 3, Winter 2003 Derivatives and Volatility on Indian Stock Markets Snehal Bandivadekar and Saurabh Ghosh * Derivative products like futures and options on Indian stock markets have become important instruments of price discovery, portfolio diversification and risk hedging in recent times. This paper studies the impact of introduction of index futures on spot market volatility on both S&P CNX Nifty and BSE Sensex using ARCH/GARCH technique. The empirical analysis points towards a decline in spot market volatility after the introduction of index futures due to increased impact of recent news and reduced effect of uncertainty originating from the old news. However, further investigation also reveals that the market wide volatility has fallen during the period under consideration. Surrogate indices like BSE 200 and Nifty Junior are introduced to evaluate whether the introduction of index futures per se has been instrumental in reducing the spot market volatility or the volatility has fallen in line with general fall in market wide volatility. The results using these surrogate indices show that while the ‘futures effect’ plays a definite role in the reduction of volatility in the case of S&P CNX Nifty, in the case of BSE Sensex, where derivative turnover is considerably low, its role seems to be ambiguous. JEL Classification: G1, G14, G15 Key words: Derivatives, index futures, stock markets, volatility, ARCH-GARCH Introduction A derivative is financial instrument whose...
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...FINANCIAL DERIVATIVES (A Future of Indian Financial Market) Dr. Ritu Kothiwal, Associate Professor, BIET, Hyderabad Contact No: 09246193330 Email Id: kothiwal55@gmail.com Mr. Ankur Goel, Research Scholar (Management), Mewar University, GZB. Contact No: 9917745990 Email Id: mrankurgoel@gmail.com. ABSTRACT Among all the innovations that have flooded the international financial markets, financial derivatives occupy the driver's seat. These specialized instruments facilitate the shuffling and redistribution of the risks that an investor faces. Thus aids in the process of diversifying ones portfolio. The volatility in the equity markets over the past years has resulted in greater use of equity derivatives. The volume of the exchange traded equity futures and options in most of the mature markets have seen a significant growth. It goes beyond that the local derivative in the emerging markets have witnessed widespread use of the derivative instrument for a variety of reasons. This continuous growth and development by the emerging market participants has resulted in capital inflows as well as helped the investors in risk protection through hedging. INTRODUCTION AND CONCEPT OF DERIVATIVES: Derivatives are financial contracts whose values are derived from the value of an underlying primary financial instrument, commodity or index, such as: interest rates, exchange rates, commodities, and equities. The International Monetary Fund defines derivatives as "financial...
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...or 20%, circuit breakers would come into effect. In the US markets, SEC can halt trading if the DJIA drops by 10% before 2.30pm. If the DJIA drops 30% at any pint in the day, trading for the day ends. DJIA has dropped more than 10% only three times in its history. CIRCUIT BREAKER in INDIA. They were introduced in 2001 by the SEBI ( Securities & Exchange Board of India). They will apply if the Bombay Stock Exchange or National Stock Exchange moves by 10%, 15% or 20%. On May 18, 2009, trading on India’s Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) was halted for the full day as the markets hit the 20 per cent circuit breaker after they reopened at 11:55 am. The Sensex zoomed 2,110 points to 14,284 while the Nifty touched 4,323, up 651 points. This was for the first time trading was halted on the BSE and NSE and also the biggest ever single-day gains....
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...AAMJAF, Vol. 4, No. 2, 43–65, 2008 ASIAN ACADEMY of MANAGEMENT JOURNAL of ACCOUNTING and FINANCE THE IMPACT OF DERIVATIVES ON STOCK MARKET VOLATILITY: A STUDY OF THE NIFTY INDEX T. Mallikarjunappa1* and Afsal E. M.2 1 Department of Business Administration, Mangalore University, Mangalagangotri – 574199, Mangalore, DK, Karnataka, India 2 School of Management and Business Studies, Mahatma Gandhi University, P.D. Hills, Kottayam – 686560, Kerala State, India *Corresponding author: tmmallik@yahoo.com ABSTRACT This paper studies the volatility implications of the introduction of derivatives on stock market volatility in India using the S&P CNX Nifty Index as a benchmark. To account for non-constant error variance in the return series, a GARCH model is fitted by incorporating futures and options dummy variables in the conditional variance equation. We find clustering and persistence of volatility before and after derivatives, while listing seems to have no stabilisation or destabilisation effects on market volatility. The postderivatives period shows that the sensitivity of the index returns to market returns and any day-of-the-week effects have disappeared. That is, the nature of the volatility patterns has altered during the post-derivatives period. Keywords: conditional volatility, heteroscedasticity, volatility clustering, market efficiency INTRODUCTION The modelling of asset returns volatility continues to be one of the key areas of financial...
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...performance of the overall economy or a sector of the economy. An Index is used to give information about the price movements of products in the financial, commodities or any other markets. Financial indexes are constructed to measure price movements of stocks, bonds, T-bills and other forms of investments. Stock market indexes are meant to capture the overall behaviour of equity markets. Stock market indexes are useful for a variety of reasons. Some of them are: • They provide a historical comparison of returns on money invested in the stock market against other forms of investments such as gold or debt. • They can be used as a standard against which to compare the performance of an equity fund. • It is a lead indicator of the performance of the overall economy or a sector of the economy • Stock indexes reflect highly up to date information • Modern financial applications such as Index Funds, Index Futures, Index Options play an important role in financial investments and risk management Further the different indices in the Indian makerts mainly in NSE and BSE are discussed. NATIONAL STOCK EXCHANGE THE BEGINNING In the fast growing Indian financial market, there are 23 stock exchanges trading securities. The National Stock Exchange of India (NSE) situated in Mumbai - is the largest and most advanced exchange with 1016 companies listed and 726 trading members. The NSE is...
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...………………………..……………………………….………………..2 Introduction ……………………..………………………………………………………………….……..3 1.1 Why Derivative Markets…………………………….………………………………………………….……..3 1.2 Derivative Markets………………………………………………………………………………………….……3 1.3 Types of Traders……………………………………………………………………………………………………5 1.4 Types of Contracts………………………………………………………………………………………………..5 1.5 Development of Indian Derivatives Market…………………………………………………………..6 Objectives of the Study……………………………………………………….………………………..6 Research Methodology ………………………………………………………………………………..7 Properties of Data…………………………………………………………………………………………7 4.1 Analysis of different contracts…..………………………………………………………………………….9 4.2 Comparison between Call and Put Trade Volume ….……………………………………..……10 4.3 Speculation ratio…………………………………………………………………………………………………11 4.4 Estimation of NIFTY spot Price using Put-Call Parity……………………………………………13 Conclusion………………………………………………………………………………………………….15 Appendix…………………………………………………………………………………………………….16 1 Executive Summary Futures and options markets in India are relatively new. The National Stock Exchange (NSE) introduced trading in Index Options (also based on Nifty) on June 4, 2001. The Futures and Options on individual securities are available on only 223 securities. In developed markets, derivatives play a very important role in price discovery and information dissemination. However, in emerging markets where the derivatives markets are not very liquid, it is very important to understand their role. This paper attempts...
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