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Title: The impact and performance of new equity derivatives : evidence from universal stock futures
Author: Chau, Frankie Ho-Chi
Awarding Body: Durham University
Current Institution: Durham University
Date of Award: 2007
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Over the last few decades, a large number of new equity derivatives have emerged in the international financial system. Examples of these innovations include equity options, stock index futures, and more recently, futures on individual stocks. Whether the creation of these new derivative instruments has social or economic value is of central concern for both policy-makers and scholars. Advocates argue that the new derivative instruments make markets more complete, enhance information dissemination, and allow a more optimal allocation of risk in the economy. However, there are many who argue that derivatives have a negative impact on financial markets, by allowing more investors to take highly leveraged speculative positions. A considerable amount of research has been directed towards examining the impact and performance of different commodity and financial derivatives markets. However, as a recent entrant to the global derivatives market, the evidence on Universal Stock Futures (USFs) market is very limited. This thesis, therefore, aims to provide new evidence in the literature by examining the role and functioning of USF contracts. Given their unique characteristics, the investigation of USFs provides more reliable and wider ranging insights into the economic benefits and costs of futures market. The empirical results can be summarised as follows. First, the introduction of USFs has not had a detrimental effect on the underlying markets. On the contrary, the influence appears to have been positive leading to a small reduction in noise trading and improved efficiency. Second, USFs perform the price discovery function efficiently since futures prices contribute to the discovery of new information. Furthermore, many USF contracts influence the volatility of the relevant stock, and therefore, further support the notion of price discovery. Third, the market also seems to perform its risk management function satisfactorily, although some contracts fail to reduce the price risk to the extent evidenced in other markets in the literature. Finally, sub-period/sub-sample analysis indicates that the effectiveness of USF contract as a centre for price discovery and risk management has strengthened over the years; and are influenced by market-specific factors (liquidity and trading costs), futures characteristics like contract size, and geographical origin of underlying stock. The overall finding of this thesis is that USF markets are well-functioning and do not undermine the existing markets. These results should provide useful reference for other emerging markets which have introduced and/or been considering to launch single stock futures to their markets.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available