Stock Futures Trading Information and Spot Price Volatility: Evidence from the Indian Pharmaceutical Sector
Department of Economics, Christ University, Hosur Road, Bangalore - 560 029, Karnataka, India
Exponential GARCH model was employed to examine the impact of futures trading on spot market volatility of the twelve underlying shares of pharmaceutical sector of India. The empirical analysis was conducted for the daily closing price returns of each stock of pharmaceutical firms for the different time periods from 1st January, 1996 through 12th March, 2009. The analysis reveals mixed findings. Most of the selected pharmaceutical stocks reveal an introduction of futures market declined the volatility of underlying spot market. This is followed by positive impact of introduction of futures on the spot market volatility of the selected underlying shares of pharmaceutical firms in India. Besides, the empirical findings of most of the selected pharmaceutical scrips indicate the existence of positive asymmetric response to new information on the volatility of underlying spot market.
Keywords: EGARCH Model, Asymmetric Response, Information, Pharmaceutical Stocks