INVESTORS’ BEHAVIOR AND FUTURES MARKETS: A Dynamic CAPM Augmented GJR-GARCH Process Approach with Non-Normal Distribution


During the market turmoil, and later in the year 2008, the Securities and Exchange Commission of Pakistan (SECP) decided to discontinue the trading in single stock futures (SSFs) at the Karachi Stock Exchange (KSE). On 27th July 2009, trading in SSFs were re-launched in those stocks which passed the stringent criteria set by the SECP. While the overall market is in a transitional stage, there is a need to assess this new situation in order to improve and regulate the available futures contracts, as well as, the upcoming options contracts. In this vein, this study attempts to investigate the impact of parallel SSFs markets on the underlying spot market by examining whether the introduction of futures has played a role in destabilizing the market. The results suggest an insignificant change in coefficients used to gauge the market inefficiencies, feedback trading, trading volume, and volatility. This may imply that stringent contract specifications have helped to mitigate the potential destabilizing ability of SSFs.

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