Growing pains: The evolution of new stock index futures in emerging markets |
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| Institution: | 1. Assistant Professor of Finance, Dolan School of Business, Fairfield University, Fairfield, CT 06824, United States;2. Professor of Finance, Zarb School of Business, Hofstra University, Hempstead, NY 11549, United States;3. Economist, AIG, New York, NY 10038, United States;1. Department of Business, University Grenoble-Alps, CERAG, INRIA (STEEP team) and PPL (Philosophie, Pratiques & Languages), France;2. University Grenoble-Alps, LARHRA, France;1. IESEG School of Management (LEM-CNRS), Rue de la Digue 3, F-59000 Lille, France;2. University of Liège HEC Management School, Rue Louvrex 14, B-4000 Liège, Belgium |
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| Abstract: | Analyzing the first seven years of trading in Turkish stock index futures (BIST 30) and contrasting that to the progress of Korean (KOSPI 200) and Taiwanese (TAIEX) markets, we find that BIST 30 initially experiences a persistent mispricing and speculative trading similar to KOSPI 200 but it also experiences the largest increase in hedge effectiveness, becoming hedger-dominated similar to TAIEX. Most significantly, we demonstrate that spot market short-sell quote volume is a good measure of short-sale constraints and a significant determinant of mispricing in BIST 30. A methodological contribution of this paper is a four-equation multivariate VAR framework to analyze the volatility impact of futures. |
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| Keywords: | Index futures Mispricing Price discovery Volatility Hedging effectiveness |
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