The hedgers. Some commentators (for instance, Chatrath, Ramchandar

uncertainty discourages the investors to invest in cash market in the presence
of derivative market because in economic and financial market various types of
risk are present; there is no mechanism to eliminate risk. The purpose behind
the introduction of parallel futures markets is to manage and regulate the risk
factor with stable and favorable returns. There are two types of investors in the
market: informed trader and uninformed trader. Informed traders take decision
based on market information and uninformed traders take part in market based on
rumors and unrelated information.
According to the academic
literature, there are two types of speculators: rational speculators and noise
traders. The standard view (Friedman, 1952) views rational speculators as
trading on fundamentals, which in turn will stabilize the market and reduce
excessive short-term price fluctuation. However, noise traders provide noise in
market with enough liquidity and increase the volatility in underlying spot
market. Likewise, futures markets attract the rational speculators who are well
aware about market and help to stabilize the prices. In this case,
risk-aversive traders not take active part in this type of instruments, this
leads to more involvement of noise traders. There are two types of noise
traders, positive feedback trader and negative feedback traders. Positive
feedback strategy allows the trader to sell the stock when the prices are going
to fall and buy when prices are going to high; this will also lead the
volatility in prices as opposite in the case of negative feedback trading
scenario. Although the hedging activities of feedback traders account for a
major component of the volatility and market, volume has also attracted the
speculators and hedgers. Some commentators (for instance, Chatrath, Ramchandar
& song, 1998) argue that the involvement of such traders enhance the
underlying volatility in spot market.


stabilization or destabilization impact of futures in underlying stock market
is the area of interest for researchers, academics, practitioners and
regulators since their introduction in 1970s. Futures market contributes higher
spot market volatility as compared to the spot market (Cagan, 1981; Cox, 1976;
Figlewski, 1981; Hart & Kreps, 1986; Stein, 1987). On the other hand, it
also argued that futures markets have a stabilizing effect on the spot market
because futures trading improves price discovery, enhances market efficiency,
increases market depth as well as information flows and contributes to market
completion. As a result, the introduction of futures trading reduces the
volatility of the underlying spot market (Bray, 1981; Danthine, 1978; Kyle,
1985; Powers, 1970; Stoll & Whaley, 1988). This debate is conflicting whether
the futures stabilize or destabilize the spot market. Many researchers use
different set of samples and methodologies to test the relationship among
volatility, market efficiency, and spot market. Empirical result did not
suggest any evidence about futures and spot market volatility.

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Feedback trading actively
incorporated in developed and found in emerging countries but mostly during
market decline. (Koutmos & Saidi, 2001) examine the role of feedback
trading when market decline, they argue that during such period’s stock return
autocorrelations become negative and volatility rises. Volatility during market
declines suggesting that feedback trading may be partially responsible. While
establishing the impact of feedback trading in emerging and developed countries
(Bohl & Siklos, 2008) concluded that positive feedback traders contribute
to the stock price formation process in mature markets, while their impact is
less important in emerging stock markets. The term BRIC is
association of Brazil, Russia, India and China. The all members of BRIC are
leading developing, newly industrialized countries, and G-20 members. The BRIC
covers 41% of world population with 3.6 billion people according to 2015 and combine
GDP of 16.6 trillion US$ with 22%
of GWP (gross world product). Whereas, Brazil is largest country in GDP and PPP
estimated in 2017 and fastest growing economy. In Brazil, (commodities
and futures exchange) is major derivative exchange which started its operation
in 1986, and currently ranked as third among the futures exchanges of the world,
by number of contracts traded. The total turnover increased yearly at the rate
of 150 percent. The Russia is leading derivative market in Russia and Eastern
Europe FORTS (future and option RTS). India also considered as a fast growing
economy in world with nominal GDP
and PPP ranked third world-wide.
It is seventh largest country by area and second populous country with 1.2
billion peoples whereas, china currently second largest importer and world
largest exporter of goods. Therefore, these countries are well structure in
trade from many years and contributing in financial markets. However, financial
markets have been characterized by high volatility especially during periods of
structural breaks like the recent global financial crisis (GFC). the
volatility behavior of stock markets during major events and crises,
particularly the time-varying conditional correlations between the most
important emerging markets such as the BRICS (Brazil, Russia, India, China, and
South Africa) and the major developed stock markets (United States, Japan,
Germany, United Kingdom and France) a key challenge for international investors
and policy makers in order to be able to make sound decisions (Hammoudeh et
al., 2016; Mensi et al., 2016; Yarovay and Lau, 2016). The growth of emerging
countries in various financial instruments attracts various financial investors
and institutional investment. However, BRIC countries did not received much
attention in academic so this study attempts to investigate the impact of new
derivative market on the volatility of cash market and market efficiency. Few
studies conducted to address the relationship of futures market and cash market
especially in the context of BRIC countries. The futures are useful instrument
to provide the flow of information in the spot market prices result, increase
in spot market volatility. So far, the impact of futures on market volatility
is under debate. However, this study will be beneficial for investors,
practitioners, academics and regulators.


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