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INSTITUTE OF MANAGEMENT AND STUDIES

Assignment Portfolio management


(Literature review of journals)

Submitted to Mr. Sumit khurana

Submitted by Ravina gehlot MBA(FA) 3RD semester Section B

1st journal Name of the Journal:


Title
Spot Market in India. JOURNAL OF BUSINESS MANAGEMENT

: An Empirical Study on Impact of Index Futures Trading On : Sathya Swaroop Debasish : VOL. 2, ISSUE 2 (2009) : An attempt is made to investigate the effect of futures

Author Volume Abstract

trading on the volatility and operating efficiency of the underlying Indian stock market by taking a sample of selected individual stocks. Specifically, the study examines whether the index futures trading in India has caused a significant change in spot price volatility of the underlying stocks and how the index futures trading has affected market/trading efficiency in the Indian futures and stock markets. The effect of the introduction of futures trading is examined using an extended period of June 1995 to May 2009.We employ an event study approach to test whether the introduction of index futures trading has resulted in significant change in volatility and efficiency of the stock returns. The study compares spot price volatility changes before and after futures trading is introduced in the stock indices. The result shows that the introduction of Nifty index futures trading in India is associated with both reduction in spot price volatility and reduced trading efficiency in the underlying stock market. The results of this study suggest that there is a trade-off between gains and costs associated with the introduction of derivatives trading at least on a short-term perspective. This paper offers a unique contribution in examining the impact of introduction of index futures trading in NSE Nifty index and the index futures covering a period since introduction of index futures in Indian Capital Market. The results suggest that the market would have to pay a certain price, such as a loss of market efficiency for the sake of market stabilization. Hence, a desirable market policy for derivatives trading would be one that would preserve market stabilization while still not damaging market efficiency in the underlying spot market.

CONCLUSION

: This study examines the effect of futures trading on spot

price volatility and market efficiency of the underlying stock market. Specifically, the

study examines whether the index futures trading in India has caused a significant change in spot price volatility of the underlying stocks and how the index futures trading has affected market/trading efficiency in the Indian futures and stock markets. The results of this study suggest that there is a trade-off between gains and costs associated with the introduction of derivatives trading at least on a short-term perspective. The results suggest that the market would have to pay a certain price, such as a loss of market efficiency for the sake of market stabilization. Hence, a desirable market policy for derivatives trading would be one that would preserve market stabilization while still not damaging market efficiency in the underlying spot market. The results of this study are crucial to investors, stock exchange officials and regulators. Derivatives play a very important role in the price discovery process and in completing the market.

2nd journal Name of the journal : International Research Journal of Finance and
Economics.

Title
Market.

: The Efficiency of Indias Stock Index Futures : B. B. Pradhan (Siksha O Anusandhan University,

Author

Bhubaneswar), Manmohan Mall (Siksha O Anusandhan University, Bhubaneswar), P. K. Mishra (Siksha O Anusandhan University, Bhubaneswar).

Abstract

: In the empirical literature on capital market efficiency,

the hypothesis that futures price is an unbiased predictor of the future spot price has been one of the most controversial topics among the researchers, analysts and academicians. The study of the efficiency of the futures market is significant in an emerging market like India as futures market serves the most important functions of competitive price discovery, management of risk, facilitating financing, and promotion of efficient resource allocation. Thus, this paper is an attempt to test the long-term efficiency of futures market in India. The application of unit root and Co integration

tests provide the evidence of the futures market efficiency in India. Efficient price discovery in the futures market implies that traders can take significant hedging positions to minimize the risk exposure in the spot market.

Conclusion

: This paper investigates the long-run market efficiency

over the sample period June 2000 to May 2011. The results provide the evidence that the time series of spot and future prices of S & P CNX NIFTY are integrated of order one and Co integrated in the long-run. This is the indication of relative efficiency of Indias F & O market. Such results assures the traders that in the event of high fluctuations in the market they can rely upon the direction of the futures market because it would provide them significant information regarding the prospective move in the spot market. Thus, the retail as well as domestic institutional traders in India can design their portfolio and can take positions in the futures market to safeguard themselves from the fluctuations in the cash market. In addition, the regulators will in advance come to know regarding the prospective price movement in the cash market and when they feel market overreacting to the information, they can take appropriate action in the interest of the common investor. Moreover, from the price movements in the futures market they can adjudge the expected volatility in the cash market.

3rd journal Name of the journal : Eurasian Journal of Business and Economics. Title
in India.

: Impact of Derivative Trading On Stock Market Volatility


: Ruchika GAHLOT, Saroj K. DATTA, Sheeba KAPIL : The Purpose of the study is to examine the impact of

Author Abstract

derivative trading on stock market volatility. The sample data consist of closing prices of S&P CNX Nifty as well as closing prices of five derivative stocks and five non derivative stocks from April 1, 2002 to March 31, 2005. The study uses GARCH model to capture nature of volatility over time and volatility clustering phenomenon of

data. The evidences suggest that there is no significant change in the volatility of S &P CNX Nifty, but the structure of volatility has changed to some extent. However, results show mixed effect in case of 10 individual stocks. These results can assist investors in making investment decision. It also helps to identify need for regulation.

Conclusion

:We have studied the behaviour of volatility of stock market

after introduction of future by using GARCH (1, 1) model. We have considered S&P CNX Nifty and 10 individual stocks of which 5 are derivative stock and another 5 are derivative stocks. In case of index future, the volatility in the S&P CNX Nifty has declined after the introduction of S&P CNX Nifty future but the magnitude of dummy variable is very low which shows decline in volatility is very low. In case of 7 individual stocks, it shows a increase in volatility but there are 3 stocks which shows reduction in the volatility. There is, thus, mixed results regarding the impact of introduction of future on the underlying spot market volatility. Nifty shows contradictory pattern.

4th journal Name of the journal : Title


Futures in India. Journal of Economics and Behavioral Studies. Investigating Expiration Day Effects in Stock Index

: :

Author Abstract

Sathya Swaroop Debasish

: This study attempts to examine whether potential expiration

effects exist on the NSE Nifty index by comparing the trading volume and return process at expiration with a comparison group. The period of analysis covers index futures expirations from June 2001 to May 2009. The trading volume and return process on expiration days and during expiration weeks were compared with a set of comparison days and comparison weeks. The current study used the pooled t-test and Wilcoxon rank sum test to investigate whether mean returns, price ranges, and adjusted trading volumes (i.e. time-independent trading volumes) were significantly different at expiration. The procedure as used by Stoll and Whaley (1987) was used

to examine if price reversals existed during expiration days and comparison days.The evidence indicates that the trading volume on expiration days and in expiration weeks was significantly larger than on comparison days and during comparison weeks. Further, the results suggest that there were no price distortions on the expiration day or during the expiration week for the complete sample period and the second sub-period. For the first sub-period, however, evidence suggesting that expiration days and weeks experienced higher volatility than normal does exist. No evidence of significantly different mean returns, volatility, or price reversals at expiration was found. This could be due to the longer settlement period in India.

Conclusions

:This study examined potential expiration effects on the NSE Nifty

index by comparing the trading volume and return process on expiration days and during expiration weeks with a set of comparison days and comparison weeks. The period of analysis covers expirations from June 2001 to May 2009. The complete sample period was divided into two equal sub-periods. The major findings of this study are: firstly, for the complete sample period as well as for the two sub-periods, the evidence indicates that the trading volume on expiration days and in expiration weeks was significantly larger than on comparison days and during comparison weeks. Secondly, the results suggest that there were no price distortions on the expiration day or during the expiration week for the complete sample period and the second sub period.

5th journal Name of the journal


Economics.

International Research Journal of Finance and

Title Author Abstract

: Spot and Futures Markets of Selected Commercial : K. Sham Bhat (Professor, Department of : Johansens Co integration technique followed by

Banks in India: What Causes What? Economics),P. Srinivasan (Ph.D Scholar, Department of Economics)

the Vector Error Correction Model (VECM) was employed to examine the lead-lag

relationship between NSE spot and futures market for selected twenty-one commercial banking stocks of India. The empirical analysis was conducted for the daily data series from 27th May, 2005 to 29th May, 2008 and it is collected from National Stock Exchange (NSE) website. The analysis reveals mixed findings. However, most of the selected commercial bank stocks in India reveal future leads to spot and equal number of selected banking stocks reveals bi-directional and spot lead to future prices. The variation of price discovery mechanism from one bank stock to another is due to the fact that the selected commercial banking stocks are widely dispersed in terms of its bank-specific activities and also they are subject towards prevailing differential market frictions such as transaction costs, initial margin requirements, leverage positions and flexibility of short positions and liquidity differences between spot and futures markets. Besides, the present study suggests that depending on the relative proportion of informed to uninformed (noise) traders migrating from the spot market to the futures market, the lead-lag relationship between futures and spot market of selected banking stocks may differs.

Conclusion

:Johansens Co integration

technique followed by the

Vector Error Correction Model (VECM) was employed to examine the lead-lag relationship between NSE spot and futures market for selected twenty-one individual banking stocks. The empirical analysis was conducted for the daily data series from 27th May, 2005 to 29th May, 2008. The present analysis reveals mixed findings. However, the results of the most of selected commercial bank stocks reveals future leads to spot and equal number of selected banking stocks reveals bi-directional and spot lead to future prices. The variation of price discovery mechanism from one bank stock to another is due to the fact that the selected commercial banking stocks are widely dispersed in terms of its bank-specific activities and also they are subject towards prevailing differential market frictions such as transaction costs, initial margin requirements, leverage positions and flexibility of short positions and liquidity differences between spot and futures markets. Besides, the present study suggests that depending on the relative proportion of informed to uninformed (noise) traders migrating from the spot market to the futures market, the lead-lag relationship between futures and spot market of selected banking stocks may differs.