Correlates of Index Futures and Spot Index Volatility
Keywords:
Volatility., Underlying, Spot Index, Index FuturesAbstract
In this paper an analysis on the dynamic relationship between Index Futures and Spot Index Volatility is carried out to ascertain the extent of influence that Index Futures hold over underlying (spot index). For this purpose relevant intraday data from 1st April 1995 – 12th June 2000 of S&P CNX NIFTY (50) is used to measure the level of volatility of spot Index during the pre-derivatives period. The second reference period is taken from 1st January 2001 – 31st December 2006 to determine the level of volatility during the post-derivatives period. This is followed by a comparative analysis of both the periods and the findings of the study decompose that there exists a significant correlation between index futures and underlying volatility (Spot Index) as the level of the volatility throughout the post-derivatives period witnessed considerable increase. The findings of this study corroborate and strengthen the results of many studies mentioned in the review.
