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Does the introduction of index futures stabilize stock markets? Further evidence from emerging markets

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  • Kutan, Ali M.
  • Shi, Yukun
  • Wei, Mingzhe
  • Zhao, Yang
Abstract
We examine how the introduction of index futures affects the stability of stock markets in seven emerging countries by studying the existence and the impact of positive feedback trading in both pre- and post-futures periods. Consistent with the findings in advanced markets, we find that positive feedback traders are already prevalent before the introduction of index futures in six out of the seven markets studied. After the introduction of index futures, signs of positive feedback trading emerge in only two markets (India and Poland). In contrast to the evidence in developed markets, positive feedback traders migrate from spot to futures markets in four markets, which suggests that the introduction of index futures may destabilize some emerging stock markets. Another interesting finding is that positive feedback trading becomes more intense when there is a market decline in the majority of the markets.

Suggested Citation

  • Kutan, Ali M. & Shi, Yukun & Wei, Mingzhe & Zhao, Yang, 2018. "Does the introduction of index futures stabilize stock markets? Further evidence from emerging markets," International Review of Economics & Finance, Elsevier, vol. 57(C), pages 183-197.
    • Handle: RePEc:eee:reveco:v:57:y:2018:i:c:p:183-197
    DOI: 10.1016/j.iref.2018.01.003
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    More about this item

    Keywords

    Emerging markets; Feedback trading; Stabilization; Stock index futures;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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