The Impact of Derivative Trading on the Liquidity Beta of Underlying Stocks in India

The IUP Journal of Applied Finance, Vol. 18, No. 4, October 2012, pp. 97-107

Posted: 5 Dec 2012

See all articles by M. S. Narasimhan

M. S. Narasimhan

Indian Institute of Management, Bangalore

Shalu Kalra

Alliance University - Alliance University

Date Written: December 4, 2012

Abstract

This paper examines the impact of changes in aggregate market liquidity on stocks in which derivative trading is allowed. Though the liquidity of the market declines after the introduction of derivative trading, the impact of changes in market liquidity on stocks is critical in asset pricing. We find that the negative value of liquidity beta has increased after the introduction of derivative trading, thus increasing the sensitivity of liquidity shocks on asset prices.

Suggested Citation

Narasimhan, M. S. and Kalra, Shalu, The Impact of Derivative Trading on the Liquidity Beta of Underlying Stocks in India (December 4, 2012). The IUP Journal of Applied Finance, Vol. 18, No. 4, October 2012, pp. 97-107, Available at SSRN: https://ssrn.com/abstract=2184798

M. S. Narasimhan (Contact Author)

Indian Institute of Management, Bangalore ( email )

Bangalore, Karnataka, 560076
91-80-26993026 (Phone)

HOME PAGE: http://www.iimb.ernet.in

Shalu Kalra

Alliance University - Alliance University ( email )

Anekal Chandapura Road
Anekal
Bangalore, 562106
India

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