Author(s): Lakshmi VDMV
The study examines whether single stock futures (SSFs) cause any destabilisation effect on spot volatility for a sample of 104 stocks using the range of models namely F test, OLS model, Generalised Auto Regressive Conditional Heteroscedasticity (GARCH) and Exponential GARCH (EGARCH) models with futures dummy. The study observes non-normality in return series of all the sample stocks. Augmented Dickey Fuller (ADF) test of stationarity reveals that price series of all the stocks are non-stationary at level but return series are stationary. The study finds that SSFs do not cause any destabilisation effect; rather help reduce the spot volatility of majority of sample stocks against the general premise that SSFs cause unwanted speculation. This evidence builds the confidence of the investors and enables them to shift to exchange traded instruments from traditional investments. Low volatility enables the corporates to procure funds at relatively low cost and maximise shareholder’s wealth. However, there is a presence of persistence of long memory stocks and market inefficiency which draws the attention of the regulator to formulate policies for faster dissemination of information in share prices.