EXCHANGE-TRADED EQUITY DERIVATIVES PRODUCTS: WHAT DETERMINES THEIR SUCCESS?

Freshia Mugo-Waweru
Strathmore University, Nairobi, Kenya
Kim Yu-Kyung
Dongbei University of Finance and Economics, Liaoning, China
ABSTRACT
Derivatives exchanges introduce derivatives products which may end up recording high
trading volume (successful products) or not (unsuccessful products). The key question is, what
determines derivatives products successful and why are some products unsuccessful? This paper
empirically analyzes factors behind successful exchange-traded derivatives products in Asia’s
emerging markets. The influencing factors include; the size of the underlying spot market, the spot
market volatility, the spot market liquidity, whether the derivatives product is the first contract
introduced in the derivatives exchange, and whether the product is an option or a future.
The results show that the size of the underlying spot market, the spot market volatility and
the spot market liquidity have statistically significant positive effect on the trading volume of the
derivatives products. Moreover, if the derivatives product was the first derivatives product
introduced in the exchange, it is more likely to be successful. Option contracts are found to be
relatively more successful than futures contracts in terms of trading volume.