By Irene Chan

10 November 2009, Pg B1  (c) 2009. MediaCorp Press Ltd.

SINGAPORE - A recent study has found that trading in futures contracts linked to overseas indices listed on the Singapore Exchange (SGX) benefits both the index futures as well as its component stocks in the home exchanges.

Conducted by the Capital Markets Cooperative Research Centre, the study analysed the relationships between a few SGX-listed futures and the corresponding contracts traded on their home exchanges.

One of them is the SGX MSCI Taiwan Index futures, whose home exchange is the Taiwan Futures Exchange and the futures contract in the home exchange is the Taiwan Stock Exchange Capitalisation Weighted Stock Index Futures.

The other SGX-listed futures contract used in the study was the SGX Nikkei 225 Index futures where its corresponding futures contract in the home market, Osaka Stock Exchange, is the Nikkei 225 Index futures.

The third SGX listed futures contract included in the study was the SGX CNX Nifty Index futures where the home market is the National Stock Exchange, India and the futures contract there is the S&P CNX Nifty Index futures.

The study, which was published in a working paper entitled "The relationship between satellite market and home market volumes: Evidence from cross-listed Singapore futures contracts" was carried out by Professors Alex Frino and Frederick H Deb Harris and Mr Wong Jin Boon.

Over a five-year sample period, the study found that a 10-per-cent increase in notional turnover of the SGX-listed futures contracts resulted in a corresponding increase in turnover of the home futures contracts, as well as their component stocks.

For instance, a 10-per-cent increase in notional turnover of the SGX MSCI Taiwan Index futures will lead to a 1.63-per-cent increase in the home futures contract and a 0.78-per-cent rise in the turnover of component stocks.

The authors of the study believed that this is mainly due to arbitrage trading and hedging by market participants.

They added that it is also possible that the additional offshore listing has increased the investors' base as well.