A Study on Volatility of Indian Stocks and Index – Pre and Post Derivatives ERA

It has been almost a decade since the introduction derivatives instruments like Options and Futures trading in Indian bourses and almost two decades since the introduction and implementation of liberalization, privatization and globalization policies in Indian economy. This has resulted in sea change in growth and development of Indian economy and enhanced activity and trade in Indian stock markets. This paper examines and compares return and volatility of Indian cash market before the introduction of derivatives with that after the introduction of derivatives, mainly the futures trading in index and stocks. The results reveal that introduction of derivatives have significantly affected volatility of index and most of the stocks and resulted in destabilizing the underlying cash market and thus rejects market completion hypothesis