The effects of stock index futures trading on stock index volatility: An analysis of the asymmetric response of volatility to news

The asymmetric response of volatility to news has been attributed to leverage effects, but the authors show that noise trading is an important contributor to asymmetric effects. Contrary to the traditional view, introducing futures trading has no detrimental impact on the underlying markets. Futures trading improves market dynamics in processing news by transferring noise trading from spot to futures markets.