* Indu Gautam, Research Scholar, Uttarakhand Technical Universtiy, Dehradun
** Dr PC Kavidayal, Dean, Faculty of Management, Bhimtal Campus, Kumaon University, Nainital
Online published on 17 February, 2017.
Financial sector reforms in the decade of 1990's have transformed the Indian capital markets into a dynamic and extensive market among the world financial markets. The internalization of economic activity and the unparalleled currency and interest rate volatility, risk hedging techniques have grown at a rapid speed minimizing the effect of uncertain cash flows. The emergence of the market for derivative instruments can be traced back to the eagerness of risk avoiding economic agents to protect themselves against worries arising out of fluctuations in asset prices. Derivatives provide investors and issuers with a wider range of tools for overseeing risks and raising capital. Derivatives have shifted the speculative trading to a more controlled environment with risk containment measures like margining, monitoring of the performance of various participants. During the recent global recession derivative instruments were largely criticized on account of their speculative nature. Since the introduction of derivatives segment in the year 2000, it has led both interactions between the spot and derivative segment in Indian stock market and concern by regulators in controlling any possible harmful influences of this new trading segment. There are different opinions on impact of derivative segment on cash segment. Considering the short history of only a decade of futures and options trading in India and the presence of several market frictions and restrictions that might have hindered the efficient operation of Indian securities markets, a study was warranted to understand the opinion of investors at large towards derivative segment. This paper analyses the perception of market participants towards derivative trading, its relationship with the spot market and its role in Sub Prime crises. The study was conducted in the state of Uttarakhand, India to get an insight into the minds of investor and study how their age and risk profile influence their decision to invest in derivatives.
