Title: Listing stocks on derivatives market of NSE and its impact on liquidity of spot market

Authors: V.D.M.V. Lakshmi; Medha Joshi

Addresses: Symbiosis International (Deemed University), Gram: Lavale, Tal: Mulsi, Pune, Maharastra, 412115, India; ICFAI Business School (IBS)-Hyderabad, A constituent of ICFAI Foundation for Higher Education (IFHE) (A Deemed to-be University u/s 3 of The UGC Act 1956), Donthanapalli, Shankerpalli Road, Hyderabad, Telangana-501203, India ' National Institute of Construction Management and Research (NICMAR), 25/1, Balewadi, NIA Post Office, Pune – 411045, India

Abstract: The study attempts to examine the impact of listing selected stocks on futures and options (F&O) segment of NSE on the spot market liquidity using illiquidity ratio (Amihud, 2002) and volume as measures of liquidity. The study investigates the long-term and short-term liquidity effects in the event of both listing announcement day and actual listing day. An effort is also made to test if there is improvement in post futures liquidity of those stocks which are illiquid during pre-futures period and vice versa. Results indicate significant increase in long-term liquidity of majority of the stocks. However, there is no evidence of such significant change in the short-term liquidity. There is a clear evidence of significant improvement in long run liquidity of the stocks in the first two quartiles indicating that the stocks which are illiquid before futures became liquid after futures. However, there is a marginal decrease in the long run liquidity of already liquid stocks. The results of short run liquidity also are almost in support of this. The results for announcement day and listing day are also almost the same. Mixed results are observed in case of single stock options.

Keywords: single stock futures; SSFs; single stock options; SSOs; illiquidity ratio; F&O segment; long-term liquidity; short-term liquidity; liquidity effects; trading volume; dollar trading volume; spot market; derivatives market.

DOI: 10.1504/IJEBR.2018.093380

International Journal of Economics and Business Research, 2018 Vol.16 No.1, pp.104 - 125

Received: 13 Feb 2017
Accepted: 29 Apr 2017
Published online: 25 Jul 2018 *

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