The Volatility Effect of Single-Stock Futures Trading on the Pakistani Stock Market

Abstract

The impact of single-stock futures on spot market volatility is still debated in the finance literature. The aim of this study is to analyze the effect of the introduction of single-stock futures on the volatility of the Karachi Stock Exchange (KSE). We examine changes in the level of volatility and structure after the introduction of single-stock futures, evaluating 24 companies listed on the KSE. The study applies the F-test to determine differences in variance as a traditional measure for volatility and uses GARCH (1,1) as an econometric technique for detecting time-varying volatility. The results show that there is no effect on the volatility level but that changes occur in the structure of volatility after stock futures trading.