A Study on Effectiveness of Equity Derivatives in Cash Market Segment in India
One of the most significant events in the securities markets has been the development and expansion of financial derivatives. 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. 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. 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.