Index Futures Introduction and Spot Market Volatility: The Case of Thai Stock Market

  • Yanee Leoywanichjalearn Assumption University
  • Dr. Witsaroot Pariyaprasert Assumption University
Keywords: Futures contract, Open interest, SET50 index, Thailand Futures Exchange (TFEX)


The study examines the relationship between SET50 index futures introduction and the change of spot index volatility in Thailand. There are several studies examine stock market and the underlying assets volatility structural change when futures contract is introduced in the particular countries. Different thoughts of view emerge from several studies on this issue and results on futures introduction are somewhat ambiguous. The results show that index futures introduction leads to more spot market efficient, more price stability, and less mispricing in Thai stock market. The study also examines the relationship between factors in futures market (futures trading volume, futures open interest, and futures trading transaction) and the change of spot SET50 index volatility in Thailand. The results shows that SET50 index futures trading volume positively relates to the change of spot SET50 index volatility.

The results also support that the more players (numbers of futures open interest outstanding) in futures market enhance price discovery, market efficient, and reflect more market dimension to parties in both spot and futures markets. Moreover, the study suggests that foreign investors invest in Thailand Futures Exchange (TFEX) for hedging purpose. Foreign investors normally hold a large amount of underlying stocks in spot market. If spot market volatility increases considerably, they tend to open futures positions in TFEX to manage their desired risks in portfolios to protect losses in spot market. Moreover, local institution investors will not create the excess spot SET50 volatility. In consequence, local institution investor generally improves market efficiency and finally leads to market stabilization. Lastly, local investors tend to invest in futures market because high degree of leverage and may see a new opportunity to make more profit. In summary, local investors often create excess spot market volatility in Thailand.