Impact of Financial Derivatives on Volatility and Price Discovery in Stock Markets – Review of Related Studies

Abstract

Purpose: This paper is an extensive literature review on studies related to impact of
derivatives on volatility and price discovery in stock markets.
Design/Methodology/Approach: The literature systematically analyses studies conducted
on this subject in the last 25 years.
Findings: There are mix of techniques used by various researchers while analysing volatility
and lead–lag relationship between spot market and derivatives market. The studies have
been carried out on high frequency data, daily and monthly data as well.
Originality/Value: The research gaps identified in the paper include analysing the
relationship over longer time duration, comparison across different markets and
evaluation of changes in market dynamics after global financial crisis 2008 and COVID-19
pandemic.
Paper Type: Review of literature