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.