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Impact of Currency Futures on Spot Market Volatility

Authors: Shailesh Rastogi

Journal: Vidwat: The Indian Journal of Management

Publication date: 2011

Publisher: Vidwat: The Indian Journal of Management

URL: click here


Abstract:

Although foreign exchange market is quite old in India the need of exchange traded currency derivatives was long awaited. In 2008 currency derivatives were allowed to be traded in the exchanges in India. The impact of derivatives trading on the spot market has always been an area of interest to academia and practitioners alike. This study is an attempt to find out the impact of introduction of exchange traded currency derivatives on the spot exchange rate volatility using GARCH (1, 1) model. Besides volatility, impact of introduction of currency derivatives on market efficiency of the spot exchange rate has also been studied in this paper.