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

Kutan, A. M., Shi, Y. , Wei, M. and Zhao, Y. (2018) Does the introduction of index futures stabilize stock markets? Further evidence from emerging markets. International Review of Economics and Finance, 57, pp. 183-197. (doi: 10.1016/j.iref.2018.01.003)

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.

• Item Type: Articles
• Additional Information: The work is partially supported by Project of Key ResearchInstitute of Humanities & Social Science in Jiangxi Province [grant number JD16063].
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: WEI, MINGZHE and Shi, Dr Yukun
• Authors: Kutan, A. M., Shi, Y., Wei, M., and Zhao, Y.
• College/School: College of Social Sciences; College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: International Review of Economics and Finance
• Publisher: Elsevier
• ISSN: 1059-0560
• ISSN (Online): 1059-0560
• Published Online: 06 January 2018
• Copyright Holders: Copyright © 2018 Elsevier
• First Published: First published in International Review of Economics and Finance 57:183-197
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher