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A Note on the Effects of the Initiation of Major Market Index Futures on the Daily Returns of the Component Stocks by Francis E. Laatsch is a Economics, Econometrics and Finance article available to read on EtoBox.

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he effects of stock index futures trading on returns of the index component T stocks (and on stocks in general) is of concern to market participants, regulators, and academics. Harris (1989) demonstrates that following the introduction of futures trading, the volatility of the S&P 500 component stocks increases relative to the volatility of a control group of non-S&P stocks. This article reports the results of a similar study of the effects of the introduction of Major Market Index (MMI) futures trading. Volatility of the MMI component stocks does not appear to be greater since the introduction of MMI futures trading, in either absolute or relative terms, to the volatility of two control groups used in the study. Interpretation of a failure to find discernable effects from the introduction of MMI futures trading suffers from several potentially confounding factors.' AMEX trading in MMI options began in April 1983, predating MMI futures trading by more than one year. Thus, MMI options trading could have affected the performance of the MMI stocks making anyfurther change small. Furthermore, all 20 of the MMI stocks are included in the S&P 500 and a futures contract for the S&P began

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Author

Francis E. Laatsch

Publisher

John Wiley and Sons; Wiley (John Wiley & Sons); John Wiley & Sons Inc.; Wiley (ISSN 0270-7314)

Published

1991

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)