Macroeconomic Information Sentiment Biases in Derivatives Market: Asymmetry Evidence in Case of India

This research attempts to scrutinize the dynamic nexus between the aggregate derivatives market trading activity/volume and the macroeconomic information. We track the nonlinear impact of money supply, interest rates and gold prices along with the stock index, volatility indices and economic policy uncertainty index on India’s NSE derivative market and its sub-segments trading activity using a nonlinear autoregressive distributed lag model. This article makes contributions by filling the deficit in the available literature with reference to the understanding of the nexus of derivatives trading activity and macroeconomic information. First, we found evidence of the long-run equilibrium cointegration between money supply, gold prices, interest rates and aggregate derivatives market trading activity. Second, we found that derivatives market segments vary in macroeconomic variable sensitivity. Third, identifying macroeconomic variable-induced long- and short-term asymmetry across segments. Recognizing the asymmetrical relationship between macroeconomic information and derivatives trading activity helps investors formulate trading strategies and policymakers mitigate stock market volatility through proactive policy adjustments. Key Takeaways Evidence of the long-run equilibrium cointegration between money supply, gold prices, interest rates and aggregate derivatives market trading activity. Derivative market segments vary in macroeconomic variable sensitivity. Identifying macroeconomic variables-induced long- and short-term asymmetry across segments.