e-ISSN 2231-8542
ISSN 1511-3701

Home / Regular Issue / JTAS Vol. 21 (S) Oct. 2013 / JSSH-0922-2013


Derivatives Trading and Volatility Spill-Over: Evidence from a Developing Derivatives Market

Junaina Muhammad, A. N. Bany-Ariffin and M. H. Yahya

Pertanika Journal of Tropical Agricultural Science, Volume 21, Issue S, October 2013

Keywords: Derivatives trading, cash market, volatility spill-over and developing derivatives market

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The objective of the paper is to ascertain the influence of shares derivatives trading on the Malaysian stock market. Johansen-Juselius’ co-integration test reveals signs of increasing integration between these cash and futures markets over time. The Granger causality test indicates that the stock index futures Granger causes the cash index with no feedback in the reverse direction during periods of financial crisis and recovery. Significantly observable during the period was high participation of foreign investors in the futures market. The increase in the number of foreign investors in the futures market dramatically increases the herding activities in futures market trading. The findings suggest that the transmission of information from the futures market to the cash market could, to a certain extent, during a period of “bad economy”, be due to herding by foreign investors.

ISSN 1511-3701

e-ISSN 2231-8542

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