Abstract

While much research has been done on the impact of futures trading on the volatility of the stock market, little is interested in the relationship between information flows and volatility on the introduction of futures trading. Futures trading can increase the channels through which information is transmitted into prices of the underlying market. Examining the impact of futures trading on information efficiency of stock market depends on the link between information and volatility. The objective of this study is to consider the impact of futures trading on information efficiency of stock market. Several cases of stock indices, such as S&P 500, Nikkei225, HSI and BSE Sensex were empirically examined. The application of GJR model in Econometrics and Approximate Entropy (ApEn) approach in time series analysis would help to find a comprehensive solution of the objective in this study. By using Wald tests to compare the structural changes of volatility in pre-futures and post-futures, our results suggest that the introduction of futures has improved information efficiency flowing to the spot market.

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