INTRODUCTION There has been much debate over the possible role of option and futures trading in the variability of cash markets. Despite the inconclusive (and even encouraging) nature of the evidence regarding the impact of options and futures trading activity, there has been a move toward increased regulation of these markets [See Bessembinder and Seguin (1992)l. Reconciling the relationship between derivative trading activity and the behavior of the underlying asset remains pivotal to whether or not the current regulatory measures an options and futures markets need to be reexamined. The purpose of this article is to examine the relationship between options trading activity on the S&P 100 Index and the variability of the 'Although it is by no means clear that regulators should be concerned about greater volatility in cash markets per se, some argue that higher volatility in cash prices reflected in higher costs of capital [see Edwards (1988b)l. w Arjun Chatrath is an Assistant Professor in the Department of Graduate Studies at Lake Erie College. w Sanjay Ramchander is an Assistant Professor in the Department of Finance at Coppin State CoZlege. w Frank Song is an Assistant Professor in the Department of Economics at Cleveland State
The Journal of Futures Markets – Wiley
Published: Oct 1, 1995
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