Impact of Financial Derivatives on Volatility and Price Discovery in Indian Stock Markets Impact of Financial Derivatives on Volatility and Price Discovery in Indian Stock Markets

Abstract

The introduction and subsequent growth of derivatives is the result of the demand created by newlinehedgers, who wanted to guard themselves of the future uncertainties, and the speculators, who newlinewanted to play and earn by way of predicting those uncertainties. In India, derivatives trading newlinewas launched in the year 2000 and has seen a tremendous growth ever since its introduction. newlineAs per the Futures Industry Association (FIA), National Stock Exchange (NSE) and Bombay newlineStock Exchange (BSE), have become first largest and the fifteenth largest exchanges, newlinerespectively, in the world, based on the number of contracts traded. The primary reason for newlinelaunching of the derivative markets in India was to reduce the stock market volatile, and to newlinematch the performance of Indian financial markets with international markets. India s tryst newlinewith derivatives had three main objectives, a) reduce the volatility of the market, b) help in newlineprice discovery, and c) provide products that match risk preference of investors, including newlinehedgers. newline