Abstract
Recently, the trading volumes of derivatives in the world’s financial markets are more and more noticeable. This article employs the data from the National Stock Exchange of India, which has the tremendous trading volumes and values of Single Stock Futures in the world, to examine whether the stock market volatility change for the introduction of Single Stock Futures in India by the GARCH(1,1) model. Because of the peculiar trading mechanism: Badla, in India, we not only divided the trading period into before and after the introduction of SSFs, but also added Badla to the analysis. Subsequently, this article exploited Andersen’s (1996) specification of the modified Mixture of Distribution Hypothesis to investigate which kind of trader affect the stock price movement. The results show that the stock volatility increases due to the trading of the two similar trading mechanisms, Badla and SSFs. More importantly, the results revealed that the noise trader have the dominant power than the informed traders to affect the stock volatility.