Does the Introduction of Stock Index Futures Reduce the Stock Market Volatility

Traditional econometric models assume a constant one period forecast variance. However, many financial time series display volatility clustering, that is, autoregressive conditional heteroscedasticity (ARCH). The aim of this paper is to estimate in an effort capture the salient features stock market India and evaluate terms out-of sample accuracy. also investigates whether there any change after introduction futures. estimation made at macro level on major index, namely, S&P CNX Nifty. In addition, 50 individual companies' share prices currently included Nifty are used examine heteroscedastic behaviour Indian micro level. estimated by fitting different indices dividing study duration into two period's, pre-future another post-futures -: • Historical moving average model Standard Generalized heterosedasticity GARCH (1, 1) model. found: A strong evidence time-varying volatility. tendency periods high low cluster persistence predictability