Finance Discipline Group
UTS Business School
University of Technology, Sydney

Working Paper Series

Individual Share Futures Contracts: The Economic Impact of Their Introduction on the Underlying Equity Market
Author(s): Maurice Peat & M. McCorry
Date of publication: July 1997
Working paper number: 74
In May of 1994 (and on two subsequent dates), the Sydney Futures Exchange introduced futures contracts on slected issues of common stock. These new contracts, known as individual share futures (ISF's), represent a unique type of derivative product. This paper examines the impact of the introduction of ISF contracts on the trading behaviour of the underlying equity market. Using prior literature (related to the introduction of both options contracts and stock index futures contracts on various global markets), a number of hypotheses are developed from models of market behaviour. These hypotheses are tested empirically within the Australian context. In contrast to both option and stock index futures introduction, the introduction of ISF's results in a significant increase in both the underlying market trading volume and volatility, with no discernable returns effect.
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Known citations:

Badhani, K. N., Bisht, H. and Chauhan, A. K., , "Derivative Trading and Structural Changes in Volatility", Working Paper.

de Beer, J, 2009, "Changes in the Volatility Level and Structure of Shares Post Single Stock Futures Trading", Corporate Ownership and Control, 7(2), 296-311.

Khan, S. U., Shah, A. and Abbas, Z., 2011, "Impact of Single Stock Futures Trading on Stock Price Volatility of Underlying Stocks: Empirical Evidence from Pakistan’s Stock Market", Journal of Basic and Applied Scientific Research, 1(11), 2000-2008.

Ray, K. K. and Panda, A. K., 2011, "The Impact of Derivative Trading on Spot Market Volatility: Evidence for Indian Derivative Market", Interdisciplinary Journal of Research in Business, 1(7), 117-131.