We found a match
Your institution may have rights to this item. Sign in to continue.
- Title
Maturity and Volume Effects on the Volatility: Evidences from NSE Nifty Futures.
- Authors
Pati, Pratap Chandra; Kumar, K. Kiran
- Abstract
This study examines the volatility dynamics and investigates the Samuelson Maturity Hypothesis, a source of non-stationary in the volatility of futures price, in the context of the Indian Futures Market by taking Nifty Index Futures traded on NSE. Samuelson (1965), by assuming that spot price, follows an autoregressive order of one and futures price is an unbiased estimator of expected spot price at maturity, stated that volatility of futures price increases as the time-to-maturity (TTM) of futures contract approaches. The sample data consist of daily closing price, volume and open interest of Nifty Index futures from the period January 1, 2002 to December 29, 2005 for near-month contract with 1009 sample data points. The authors construct data sample for TTM by switching or rolling over to the next maturing contract, four days before the expiration date. For empirical issues, univariate GARCH, EGARCH family models have been employed. The conditional variance is augmented by including TTM, open interest and trading volume as exogenous explanatory variables. The empirical evidence suggests that there is time-varying volatility, volatility clustering and leverage effect in the Indian futures market. This study does not find the evidence for the Samuelson Hypothesis in the Indian futures market. The coefficient of the TTM variable is found to be statistically insignificant. With respect to volumevolatility relationship, the results indicate a clear acceptance of Mixtures of Distribution Hypothesis, i.e., there is a positive contemporaneous relationship between futures price volatility and volume. Hence, this paper concludes that time-to-maturity is not a strong determinant of futures price volatility, but the rate of information arrival proxied by volume and open interest are the important sources of volatility. The finding of this study would be useful for market participants to develop trading strategies and to build theories on the behavior of futures price.
- Subjects
INDIA; STOCK exchanges; MARKET volatility; FINANCIAL markets; COMMODITY futures
- Publication
ICFAI Journal of Derivatives Markets, 2007, Vol 4, Issue 4, p44
- ISSN
0972-9119
- Publication type
Article