—Derivatives Market has an important role to play in the economic development of a country. The objective of the study is to examine the impact of financial derivatives (futures and options) on the underlying market volatility. The paper also analyses derivatives awareness level of Indian investor and perception of investor about future of derivatives market in India.
Data has been collected for a period of 18 years from January 1, 1997 to February 5, 2015. The questionnaire was distributed to 1000 respondents but 522 filled questionnaires were received and have been analyzed in this study.
The final AR (1)-GARCH (1,1) model show that overall volatility has reduced in the spot market after the introduction of derivatives. The results of Structural Equation Modelling reveals perception of investors about future of derivatives market in India includes having an investor grievance redressal mechanism which is approachable under trading hours, steps to be taken by regulators to increase investments, conducting investor training and awareness programmes, global integration will happen, derivatives market will affect growth of the economy and consolidation of exchanges is required.
—Volatility, derivatives, GARCH, perception, derivatives awareness level, NIFTY.
Divya Verma Gakhar is with University School of Management Studies Institution - Guru Gobind Singh Indraprastha University, New Delhi, India (e-mail: firstname.lastname@example.org).
Cite: Divya Verma Gakhar, "Indian Derivatives Market: A Study of Impact on Volatility and Investor Perception," International Journal of Social Science and Humanity vol. 6, no. 12, pp. 913-918, 2016.