IMPACT OF INDEX DERIVATIVES ON INDIAN STOCK MARKET VOLATILITY-AN APPLICATION OF ARCH AND GARCH MODEL

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S. V. Ramana Rao, Naliniprava Tripathy

DOI:10.22495/cocv6i3p3

Abstract

The present study examined the impact of introduction of index futures derivative and index option derivative on Indian stock market by using ARCH and GARCH model to capture the time varying nature of volatility presence in the data period from October 1995 to July 2006. The results reported that the introduction of index futures and index options on the Nifty has produced no structural changes in the conditional volatility of Nifty but however the market efficiency has been improved after the introduction of the derivative products. The study concludes that financial derivative products are not responsible for increase or decrease in spot market volatility, but there could be other market factors which influenced the market volatility.

Keywords: ARCH, GARCH, Option Futures, Index Future and Dummy Coefficiants

How to cite this paper: Ramana Rao, S. V., & Tripathy, N. (2009). Impact of index derivatives on Indian stock market volatility-an application of arch and GARCH model. Corporate Ownership & Control, 6(3), 39-44. http://doi.org/10.22495/cocv6i3p3