Vol. 1, Issue 8, Part M (2015)

Abstract
The current study examines the effect of trading in equity derivatives on spot market volatility, specifically the effect of the introduction of equity derivatives on spot market volatility in the Indian stock market, using the daily returns of nine banks from April 1, 1998, to March 31, 2012, excluding holidays when no transactions took place. The market volatility has been studied using the GARCH (1, 1) model, which accounts for the heteroscedasticity in returns. It might be said that the introduction of trading in stock futures has decreased the volatility of the spot market. To exclude the impact of market-wide variables on equity returns, the CNX Nifty index return was used as the independent variable in the GJR GARCH model, which captures the asymmetric response, which was applied to all of the companies under consideration. The findings show that the dummy variable's coefficient is negative and significant. Therefore, it can be claimed that the introduction of trading in stock futures has decreased the volatility of the spot market.