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Index Future Trading and Spot Market Volatility in Frontier Markets: Evidence from Ho Chi Minh Stock Exchange

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Abstract

This study investigates the impact of index futures trading on the spot market volatility for Ho Chi Minh Stock Exchange (HOSE). The data used in this study are daily VN30-Index, future trading volume and open interests covering the period from March 18th, 2015 to January 2nd, 2020. In order to capture the asymmetric effect, the EGARCH(1,1) model is employed in this study. It is found that the introduction of index future trading leads to the increase the spot market volatility. In addition, our empirical findings reveal that the impact of recent news on spot market volatility in the post-index future period is greater that than the pre-index future period; and the market volatility in the post-futures period is more persistent than in the pre-futures period. Moreover, the level of asymmetric effect on the market volatility in the post-index future period is significantly lower than that for the pre-index futures period. Finally, the results derived from the Granger causality test confirm that the bi-directional causality relation between the spot market volatility and the future trading activity exists in HOSE.

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Notes

  1. Exchange rate on December 31st 2019: 1 USD = 23,155 VND.

  2. The authors also performs ARCH-LM testing with several lag orders and the basic results remain the same. Upon to request the results.

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Authors and Affiliations

  1. College of Economics, Can Tho University, Can Tho, Vietnam

    Loc Dong Truong & Dut Van Vo

  2. Faculty of Economics and Business Administration, An Giang University, Vietnam National University Ho Chi Minh City, Long Xuyen, Vietnam

    Anh Thi Kim Nguyen

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  1. Loc Dong Truong
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  2. Anh Thi Kim Nguyen
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  3. Dut Van Vo
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Correspondence to Loc Dong Truong.

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Truong, L.D., Nguyen, A.T.K. & Vo, D.V. Index Future Trading and Spot Market Volatility in Frontier Markets: Evidence from Ho Chi Minh Stock Exchange. Asia-Pac Financ Markets 28, 353–366 (2021). https://doi.org/10.1007/s10690-020-09325-1

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