Single Stock Futures Trading and Its Impact on Feedback Trading and Volatility: A Case Study of Pakistan

Forman Journal of Economic Studies Vol. 9, pp. 81-107, 2013

27 Pages Posted: 6 Dec 2014 Last revised: 5 Feb 2019

See all articles by Imran Malik

Imran Malik

Institute of Management Sciences - Peshawar

Attaullah Shah

Institute of Management Sciences

Safi Ullah khan

Institute of Management Sciences

Date Written: 2013

Abstract

In this paper, we examine the possibility of an impact of the resumption of trading in Single Stock Futures (SSFs) on the dynamics (positive feedback trading and price volatility) of the underlying stocks in Pakistan’s market. Specifically, we test the hypothesis that trading in SSFs promotes or inhibits positive feedback trading in the spot market. Analyzing SSFs has several advantages over investigation of index futures. First, any impact of futures is more likely to be evident in the behavior of SSFs than index futures. Second, with SSFs it is possible to trade directly in the underlying stocks, and the endogeneity issue can be taken care of by using a relatively weighted portfolio of non-SSFs stocks. The findings of our study suggest that there is a statistically insignificant presence of positive feedback trading in both pre-SSFs period to post-SSFs period for both SSFs-listed stocks and a matching group of non-SSFs stocks. Furthermore, the unconditional volatility has significantly changed in both SSFs and non-SSFs, while asymmetry coefficient is statistically insignificant for SSFs but significant for non-SSFs. Overall our findings suggest that resumption of SSFs neither promotes nor inhibits feedback trading in the underlying spot market in Pakistan.

Suggested Citation

Malik, Imran and Shah, Attaullah and khan, Safi Ullah, Single Stock Futures Trading and Its Impact on Feedback Trading and Volatility: A Case Study of Pakistan (2013). Forman Journal of Economic Studies Vol. 9, pp. 81-107, 2013 , Available at SSRN: https://ssrn.com/abstract=2534226

Imran Malik

Institute of Management Sciences - Peshawar ( email )

Sector E-5, Hayatabad, Phase VII
Hayatabad
Peshawar, KPK 25000
Pakistan

Attaullah Shah (Contact Author)

Institute of Management Sciences ( email )

1-A, Sector E / 5, Phase – VII, Hayatabad, Peshawa
Peshawar, NWFP 25000
Pakistan
+923459146115 (Phone)

HOME PAGE: http://www.opendoors.pk

Safi Ullah Khan

Institute of Management Sciences ( email )

Phase-VII, Hayatabad
Hayatabad, Peshawar
Peshawar, NWFP 25000
Pakistan

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