Economics, Econometrics and Finance
4 years ago

Italian Stock Exchange Volatility Reduced Immediately by Introduction of Futures Trading.

SSRN Electronic Journal
Does the Introduction of Stock Index Futures Effectively Reduce Stock Market Volatility? Is the 'Futures Effect' Immediate? Evidence from the Italian Stock Exchange Using GARCH
Pierluigi Bologna, Laura Cavallo

Paper Summary

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Stock index futures can reduce stock market volatility. Researchers studied the Italian Stock Exchange to see if introducing futures contracts lowered volatility. They found that the decrease in volatility after futures trading began was indeed due to the futures contracts. Additionally, the impact of futures on market volatility happens immediately, not gradually. This shows that having active futures markets can make spot markets more efficient.