Researchers examine risk management using derivatives in the Indian stock market. They focus on volatility from 2020 to 2025. This period includes the COVID-19 crisis and recovery phases.
Investors use futures, options, and other derivatives for hedging. These tools help protect portfolios from sharp price swings. Empirical studies analyze data from NSE indices like Nifty 50 and Sensex.
Volatility spiked during early 2020 due to the pandemic. Lockdowns triggered massive sell-offs. Derivatives volumes surged as traders sought protection.
Studies apply GARCH models to measure volatility. Researchers compare periods before and after heavy derivative use. Many find that derivatives reduce idiosyncratic stock return volatility.
For instance, firms using derivatives show lower firm-specific risk. Derivative-user companies experience about 1.4% to 3% less idiosyncratic volatility than non-users. This benefit appears in samples from 2016 onward, extending into post-2020 data.
Hedging lowers exposure to currency and interest rate risks. However, derivatives do not significantly affect systematic market risk or crash probability in most cases.
During 2020-2021, COVID-induced uncertainty boosted derivative trading. Options and futures helped manage downside risk. Yet, overall market volatility remained high due to external shocks.
Post-2022 recovery saw more stable patterns. Derivative usage improved liquidity in some stocks. It complemented price discovery and risk transfer functions.
Empirical evidence supports hedging effectiveness. Firms with high information asymmetry or firm-specific risk benefit most. Boards with independence strengthen this positive effect.
Investors rotate toward derivatives in volatile times. This strategy limits losses without exiting equities entirely.
Challenges persist. Over-speculation can amplify swings in some segments. Regulators like SEBI monitor volumes closely.
Overall, derivatives serve as effective risk management tools in India. They mitigate volatility impacts from 2020 to 2025. Continued empirical research guides better strategies for investors and policymakers. This approach enhances market resilience amid uncertainties.