The volatility effect of futures trading: Evidence from LSE traded stocks listed as individual equity futures contracts on LIFFE

Mazouz, Khelifa ORCID: https://orcid.org/0000-0001-6711-1715 and Bowe, Michael 2006. The volatility effect of futures trading: Evidence from LSE traded stocks listed as individual equity futures contracts on LIFFE. International Review of Financial Analysis 15 (1) , pp. 1-20. 10.1016/j.irfa.2005.07.001

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Abstract

This study investigates the impact of LIFFE's introduction of individual equity futures contracts on the risk characteristics of the underlying stocks trading on the LSE. We employ the Fama and French three-factor model (TFM) to measure the change in the systematic risk of the underlying stocks which arises subsequent to the introduction of futures contracts. A GJR-GARCH(1,1) specification is used to test whether the futures contract listing affects the permanent and/or the transitory component of the residual variance of returns, and a control sample methodology isolates changes in the risk components that may be caused by factors other than futures contract innovation. The observed increase (decrease) in the impact of current (old) news on the residual variance implies that futures contract listing enhances stock market efficiency. There is no evidence that futures innovation impacts on either the systematic risk or the permanent component of the residual variance of returns.

Item Type:	Article
Date Type:	Publication
Status:	Published
Schools:	Business (Including Economics)
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Publisher:	Elsevier
ISSN:	1057-5219
Last Modified:	27 Oct 2022 08:15
URI:	https://orca.cardiff.ac.uk/id/eprint/61683

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