FUTURES TRADING, INFORMATION AND SPOT PRICE VOLATILITY - EVIDENCE FOR THE FTSE-100 STOCK INDEX FUTURES CONTRACT USING GARCH

This paper examines the impact of trading in the FTSE-100 Stock Index Futures on the volatility of the underlying spot market. To examine the relationship between information and volatility (as subject neglected in previous studies) the GARCH family of techniques is used. The results suggest that futures trading has led to increased volatility, but that the nature of volatility has not changed post-futures. The finding of price changes being integrated pre-futures, but being stationary post-futures, implies that the introduction of futures has improved the speed and quality of information flowing to the spot market.