Volume : 8, Issue : 3, MAR 2022

IMPACT OF FINANCIAL DERIVATIVES ON VOLATILITY AND INVESTORS BEHAVIOUR- REVIEW OF RELATED STUDIES

NEHA YADAV, DR. SANJEEV BANSAL

Abstract

The evolution of derivatives in the Indian financial markets, particularly in the equity segment, has witnessed substantial growth and transformative changes since their inception in 2000. Originating in response to the challenges posed by heightened market volatility and risk following the economic reforms of 1991, the introduction of derivatives on both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) aimed to align India's financial markets with global standards. This initiative pursued three primary objectives: mitigating market volatility, facilitating price discovery, and offering risk-aligned products for investors, especially hedgers. A multitude of studies has delved into the impact of derivatives on market volatility, yielding diverse perspectives. While some posit that derivatives may amplify volatility through substantial leverage, others emphasize their positive influence on market depth, liquidity, efficiency, and price discovery, ultimately mitigating volatility in the cash market. The research underscores the intricacies of understanding derivatives' effects on stock market dynamics, advocating for nuanced analysis and a comprehensive grasp of the intricate relationships between derivatives and underlying markets. Moreover, investigations into investor behaviour underscore the paramount importance of awareness and understanding of derivatives. Findings illuminate varying levels of investor awareness influenced by factors such as risk perception, regulatory frameworks, and market training, shaping investor participation in derivatives markets across different regions.

Keywords

DERIVATIVES MARKET, INVESTOR’S BEHAVIOUR, VOLATILITY, MARKET EFFICIENCY, SURVEY.

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