Sriharsha Pappu

Bio: Sriharsha Pappu is an academic researcher from Indian Institute of Management Ahmedabad. The author has contributed to research in topics: Volatility smile & Implied volatility. The author has an hindex of 2, co-authored 2 publications receiving 9 citations.

Understanding Volatility - The Case of the Introduction of Futures Trading in the National Stock Exchange, India

Abstract: This project attempts to investigate the effect of the introduction of Futures trading in the National Stock Exchange, India (NSE) and get insights into the effect upon the volatility of the NSE. The underlying spot market volatility is estimated using symmetric GARCH methods. Any increase in stock market volatility that has followed the onset of futures trading has generally been taken as justifying the traditional view that the introduction of futures markets induces destabilizing speculation. This has led to calls for greater regulation to minimise any detrimental effects. An alternative view is that futures markets provide an additional route by which information can be transmitted, and, therefore, increased spot market volatility may simply be a consequence of the more frequent arrival, and more rapid processing of information. Thus, futures trading may be fully consistent with efficiently functioning markets. This paper attempts to investigate the change, if any, in the volatility observed in the Indian stock market due to the introduction of futures trading. The change in the volatility is compared not only in absolute levels of volatility but also in terms of the structure of the volatility. This is done to give insights into the way the futures market is influencing the Indian spot market's volatility.

Impact of Derivatives on the Volatility and Liquidity of the Underlying: An Indian Stock Market Perspective

Abstract: It has been almost one year since exchange-based option trading on individual stocks began in the Indian market. Considering that this is a structural change, it would be interesting to note its impact on the spot market. An analysis suggests that in certain stocks both volatility and returns in the spot market have declined after options trading began. Volumes in the spot market declined in most cases, post listing. Regulators and market participants have been interested in observing the impact of the listing of options on the spot market, especially in terms of volatility. For instance, the 1987 crash is widely blamed on the excessive use of financial derivatives. Therefore, a fundamental concern is whether speculation in the option market gives rise to higher volatility in the underlying asset market. Another concern among empirical researchers has been the effect of introduction of options on volumes. The options market provides an alternative arena for speculators. For instance, assuming that speculators move from the spot to the options markets, there could be a drop in traded volumes in the former, assuming that other demand factors do not change. An empirical study of the Indian stock markets to examine the effects of derivatives on the liquidity and volatility of the underlying asset over the period of the last twelve months suggests that there is nothing to support the theory that the introduction of options has led to a rise in trading interest in the spot market.

Impact of Future Trading on Efficiency and Volatility of the Indian Stock Market: A Case of CNX 100

Abstract: Futures are used for hedging risk but at the same time this may cause changes in market efficiency as well as increase or decrease in the volatility The purpose of this article is to examine the impact of future trading on efficiency and volatility of the stock market This article uses closing prices of three indices: CNX 100, CNX500, and MSCI ACWI index to isolate the effect of future trading from macroeconomic factors of the world market as well as the Indian market Data were collected from April 1, 2005, to March 31, 2010 Run tests and unit root tests are used to check the efficiency of the market This study uses the Exponential General Autoregressive Conditional Heteroscedasticity (EGARCH) model to capture the asymmetric nature of the volatility The result shows that there is no impact on market efficiency (when calculated from mean) and market became inefficient in weak form (when computed from median) The evidences also suggest that future trading doesn't have any significant effect on stock

Measurement of Time Varying Volatility of Indian Stock Market through GARCH Model

Abstract: Indian stock market has witnessed various confrontations during last two decades resulting into occurrence of alternate phases of the market cycle. The recent financial crisis occurred in the world stock markets has caused vigorous movements in the Indian stock markets, but India has emerged as one of the soundest emerging economies of the world after this crisis. The present study is focused to examine the time varying volatility of Indian stock market specifically in equity market and has considered S&P CNX Nifty index of NSE (National Stock Exchange) for a period of approximately a decade, i.e., March 2001 to October 2010. For the alleged purpose, a total of 2415 daily observations of closing value of market proxy have been considered for all empirical tests for the study period. It is further destined to study whether there is an improvement in the persistence of stock market volatility during last decade or not. The findings of the study documented that the Indian equity market has witnessed the prev...

An Econometric Study on Impact of Futures Trading on the Stability of Stock Index in India

Abstract: The effect of futures trading on the stability of index returns is studied by taking a case of BSE Sensex stock index (India). The stability of BSE Sensex returns (measured by unconditional volatility) is examined by using two statistical tests namely Kolmogorov Smirnov 2-sample test and Wilcoxon Rank Sum test, and by use of daily observations on the BSE SENSEX index over the period of study is from Jan 1996 to Dec 2007. The conditional volatilities of monthly returns in the pre and post futures periods are examined after adjusting for major macroeconomic factors. Controlling for the effects of macroeconomic variables this study finds no evidence, apart from the month of May 2004 and May 2006, which monthly BSE Sensex index volatility has increased after inception of the BSE Sensex Futures market. Further, the volatility of daily returns in the post futures period was higher than in the pre futures period but the volatility of monthly returns remained unchanged.

Growth of Financial Derivatives in India and its Impact on Underlying Stock Market

Abstract: This paper investigates the growth of financial derivatives in India in terms of number of contracts traded and turnover at NSE and its impact on underlying stock market. Earlier studies concluded that introduction of derivatives resulted either in reducing the volatility or no change in the volatility, increased efficiency, increase in trading volume and significant impact of the expiration days of stock futures and options. These existing studies concerning financial derivatives had their focus on lead-lag relationship between derivatives and spot market, impact of the introduction of derivatives and their expiration days effect on the behavior of underlying spot market. This paper generalizes the results offered by the existing studies conducted in different ways regarding the impact of financial derivatives on the underlying stock market. The study is based on secondary data which includes various websites, journals and research papers published.

Volatility in the indian stock market: a case of individual securities

Abstract: The present paper is an attempt to examine the volatility in the individual stocks listed at NSE using daily closing prices of 29 selected companies. The companies have been selected from the list of S&P CNX Nifty covering the period from 1996-97 to 2006-07. The data have been analyzed by working out standard deviation of daily returns. The study reveals that ACC, HDFC, ITC, MTNL, SBIN and SIEMENS have been comparatively less volatile than other securities. On the other hand, the securities viz. BAJAJAUTO, DRREDDY, GLAXO, GRASIM, HDFCBANK, INFOSYSTCH, M&M, ONGC, TATAPOWER and VSNL were highly volatile during the period of study. Further, the study finds that the period after 2000-01 has registered comparatively less volatility than preceding period.