# The Impact of Futures Contracts On Risk and Returns of the VN30 Index in Vietnam

TL;DR: In this article, the effects of derivatives of the Vietnam Ho Chi Minh (VN) Stock Index and VN30 futures contract for the underlying stock markets were analyzed using the Exponential Generalized Autoregressive Conditional Heteroscedastic (EGARCH) model.

Abstract: In this paper, we analyze the effects of derivatives of the Vietnam Ho Chi Minh (VN) Stock Index and VN30 futures contract for the underlying stock markets. We use the data taken from daily transactions in the market so that the research results will be more objective and more accurate. Specifically, we apply the Exponential Generalized Autoregressive Conditional Heteroscedastic (EGARCH) model to analyze the data. The results illustrate that the occurrence of leverage effects in the profitability of VN30 and VN stock indexes and the liquidity of futures contract transactions have increased over time. The main contribution of this paper is that it is possible to predict the growth trend of derivative securities to make appropriate recommendations for investors. However, the evidence still has some limitations since it only assesses the impact of futures contracts during the specific time, which is the period of instruments that have just appeared.

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### "The Impact of Futures Contracts On ..." refers methods in this paper

...The following EGARCH model with a dummy variable measures the impact of futures contracts used (Nelson, 1991): rVN30t=β1+β2dft+β3rVNIndext+β4dTVFC (2) lnσVN30t 2 = α1+α2zt-1+α3 (|zt-1| − √ 2 π ) +α4lnσVN30t-1 2 (3) where rVN30t is the profitability of VN30 index at day t; dft is a dummy variable,…...

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1,077 citations

### "The Impact of Futures Contracts On ..." refers background or methods in this paper

...Kasman (2008) examine the impact of using stock index futures contracts on the volatility of the Istanbul Stock Exchange (ISE), using asymmetric GARCH models, in phase July 2002, October 2007....

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...However, Engle (2001) assumes that if a negative shock on profits causes more volatility than a positive shock on the profit of the same magnitude, the GARCH model predicts below the variable level dynamic when there is bad news and anticipate the volatile levels when there is good news....

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...Kasman (2008) examine the impact of using stock index futures contracts on the volatility of the Istanbul Stock Exchange (ISE), using asymmetric GARCH models, in phase July 2002, October 2007. The results from the EGARCH model show that the introduction of futures trading reduces the conditional volatility of the ISE-30 index. The results continue to show that there is a long-term relationship between the spot price and the futures contract price. The results also show that the trend of both longterm and short-term causality is from spot prices to futures prices. These findings are consistent with theories that say futures contracts improve the performance of the respective underlying market. Narasimhan and Kalra (2014) consider the impact of derivative transactions on the liquidity of underlying stocks by using liquidity price impact measures....

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...Kasman (2008) examine the impact of using stock index futures contracts on the volatility of the Istanbul Stock Exchange (ISE), using asymmetric GARCH models, in phase July 2002, October 2007. The results from the EGARCH model show that the introduction of futures trading reduces the conditional volatility of the ISE-30 index. The results continue to show that there is a long-term relationship between the spot price and the futures contract price. The results also show that the trend of both longterm and short-term causality is from spot prices to futures prices. These findings are consistent with theories that say futures contracts improve the performance of the respective underlying market. Narasimhan and Kalra (2014) consider the impact of derivative transactions on the liquidity of underlying stocks by using liquidity price impact measures. The study uses the following two periods: one year before listing the derivative and the period of one month before listing the derivative to conduct the measurement. The results of this study show a change in volume from the money market to the derivative market; there is a decrease in the number of transactions and volatility after the introduction of derivative transactions. The results show that the impact of derivative transactions on long-term liquidity of the market depends on the level of liquidity before introducing derivative transactions. They also show improvement in long-term liquidity after derivative transactions when the liquidity of stocks before the derivative transaction is not high. In other words, the derivative portfolio has improved the liquidity of weak liquidity stocks and served one of the fundamental objectives in risk management. Besides, Mallikarjunappa and Afsal (2008) used the GARCH model to conduct data measurement and analysis....

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20 citations

### "The Impact of Futures Contracts On ..." refers methods in this paper

...Besides, Mallikarjunappa and Afsal (2008) used the GARCH model to conduct data measurement and analysis....

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3 citations

### "The Impact of Futures Contracts On ..." refers methods in this paper

...Kasman (2008) examine the impact of using stock index futures contracts on the volatility of the Istanbul Stock Exchange (ISE), using asymmetric GARCH models, in phase July 2002, October 2007....

[...]

1 citations

### "The Impact of Futures Contracts On ..." refers background in this paper

...Narasimhan and Kalra (2014) consider the impact of derivative transactions on the liquidity of underlying stocks by using liquidity price impact measures....

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