Appendix – 1: Questionnaire given to respondents
An Economic Analysis of Trading in Derivatives and Behavioral
Pattern of Investors in Financial Instruments- A Case Study of
Dakshina Kannada District in Karnataka
Dear Sir / Madam,
This questionnaire has been prepared to analyse and understand the perception of investors towards
derivatives trading. Your responses will be kept confidential and shall be used exclusively for Ph.D
research purpose, undertaken by the researcher at the University of Mysore. I request you to kindly
fill up this questionnaire.
A. Profile of Investors :
1. Name : ……………………..
2. Address : ……………………………….
…………………………………..
…………………………………..
…………………………………… Contact No.: ………………..
3. Age:
(i) Below 25 [ ] (ii) 26-35 [ ] (iii) 36 - 45 [ ]
(iv) 46 - 55 [ ] (v) 56 and above [ ]
4. Gender:
(i) Male [ ] (ii) Female [ ]
5. Occupation:
(i) Student [ ] (ii) Professional [ ] (iii) Service [ ]
(iv) Self employed [ ] (v) Retired [ ] (vi) House wife [ ]
6. Annual income:
(i) Less than Rs.1,00,000 [ ] (ii) Rs.1,00,001-2,00,000 [ ] (iii) Rs.2,00,001-3,00,000 [ ]
(iv) Rs.3,00,001-4,00,000 [ ] (v) Above Rs4,00,000 [ ]
B. Questions related to Investment preference:
7. In which of the following do you actively trade? (You may select more than 1 option)
(i) Cash market [ ] (ii) Futures [ ] (iii) Option [ ]
8. How did you come to know about equity related investment?
i) Brokerage firms [ ] (ii) Friends & relatives [ ] (iii) Advertising & hoardings [ ]
(iv) Newspaper / Magazines [ ] (v) Others (please specify) …………..
9. What is the investment horizon you prefer?
(i) Short term investment : Less than 1 year [ ]
b) Long term investment : More than 1 year [ ]
c) Both []
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10. While investing, you give HIGHEST weightage to (ANY ONE)
(i) Liquidity [ ] (ii) Profitability [ ] (iii) Safety [ ]
(iv) Tax Benefits [ ] (v) Others (Please specify)……………………..
11. What percentage of your monthly income do you invest in equity shares?
(i) Below 10% [ ] (ii) 10 – 20 % [ ] (iii) 20 – 30% [ ]
(iv) 30 – 40% [ ] (v) Above 40% [ ]
12. How often do you buy shares?
(i) Daily [ ] (ii) Few Times in a month [ ] (iii) Few times in a year [ ]
13. Rank the various investment alternatives that you may invest on the following parameters on a
scale of 1 to 5, where 5 stands for HIGHEST and 1 is LOWEST :
Time horizon
Instrument Risk Return (Lock-in Liquidity Convenience
period) (Marketability)
Fixed Deposits
Savings Scheme
Bonds & Debentures
Equity Shares
NSC
KVP
Futures
Options
Mutual Funds
ULIP
Gold
Real Estate
Commodities
PPF
Others……….…
(Please specify)
14. Please rate the following factors that you consider important while investing in a particular
stock on a scale of 1 to 5, where 5 stands for HIGHEST and 1 is LOWEST in importance:
Sl. No Factor Rating ( 1 to 5 )
i Company brand name
ii. Industrial Sector of the company
iii. Profitability of Company
iv Dividends paid by the company
v Current market scenario
vi Market share of company
vii Track record of promoters
viii Track record of the company
ix News about the company
X Price in futures market for company
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C. Questions related to derivatives trading:
15. What made you shift from cash segment to Derivative segment?
(i) More profit [ ] (ii) More time for settlement [ ] (iii) Low Brokerage []
(iv) Higher lot size [ ] (v) More volatility [ ] (vi) Lesser funds required []
(vi) Others, please specify ………………
16. In which of the following do you trade?
(i) Stock Index Futures [] (ii) Stock Index Options []
(iii) Futures on Individual Stock [] (iv) Options on Individual Stocks []
17. According to you, what are the risks involved in derivative trading that you are aware of? (You
may select more than 1 option)
(i) Credit Risk [ ] (ii) Market Risk [ ] (iii) Legal Risk [ ] (iv) Operation Risk [ ]
(v) Others, please specify…………
18. Do you prefer Index derivative contracts or stock derivatives?
(i) Index derivative [ ] (ii) Stock derivative [ ] (iii) Both [ ]
19. On what basis do you select securities for trading in derivatives? (You may select more than 1
option)
(i) Market sentiments [] (ii) Black scholes model for options [ ]
(iii) Volume and liquidity [ ] (iv) Cost of carry model for futures [ ]
(v) Broker’s advice [] (vi) Friends or others advice []
(vii) More volatile [] (viii) Less volatile []
(ix) More safety [] (x) High lot size []
(xi) Low lot size [] (xii) Predictable price movements [ ]
(xiii) Company goodwill [ ] (xiv) Random selection []
(xv) Any others (please specify)…………………..
20. Do you wait till settlement day of the contract or do you square off before the settlement day?
(i) Wait till settlement Day [ ] (ii) Square off before settlement [ ]
21. Do you carry forward your positions to the next settlement?
(i) Yes [ ] (ii) No [ ] (iii) Sometimes [ ]
22. If you answered as “Yes” or “Sometimes”, please state the reasons:
(i) Chance of higher profits [ ] (ii) Chance of reducing the losses [ ]
(iii) Others, please specify………….
23. For trading in derivatives, which exchange would you prefer?
(i) NSE [ ] (ii) BSE [ ]
24. Please state the reason for preferring the above exchange (You may choose more than 1 option)
(i) Ease of trade [] (ii) Higher volumes [ ]
(iii) Advice by brokers [ ] (iv) Advice by friends [ ]
(v) Others, please specify …………….
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D. Questions related to Awareness about derivatives strategies:
25. Please tick (√) the Futures strategies you are aware of:
Sl. Strategy I know about this I have used this
No strategy strategy
I Long Futures
Ii Short Futures
Iii Long Security + Short Futures
Iv Short Security + Long Futures
V Others (Please specify) …………………
26. Please tick the Options strategies you are aware of:
Sl. Strategy I know about this I have used this
No strategy strategy
I Buy Call Option
Ii Buy Put Option
Iii Sell Call Option
Iv Sell Put Option
V Buy Stock + Buy Put Option
Vi Buy Stock + Sell Call Option
Vii Buy Call option + Sell Put option
Viii Sell Stock + Buy Call Option
Ix Sell Stock + Sell Put Option
X Buy Call option + Buy Put option
Xi Sell Call option + Sell Put option
Xii Buy Stock + Buy Put option + Sell Call option
Xiii Others (please specify) ……………….
………………………………………...
E. Questions related to satisfaction level of investors:
27. Do you get any advice from your broker?
(i) Yes [ ] (ii) No [ ]
28. Please tick (√) the following parameters based on your satisfaction level.
Neither
Parameter Highly Satisfied Satisfied nor Dissatisfied Highly
Satisfied Dissatisfied Dissatisfied
i) Broker’s recommendations
ii) Margin amount collected
iii) Present lot size
iv) Number of scrips traded
v) Charges levied
F. Questions related to trading behavior of investors:
29. If you are long on a futures contract and the market price comes down, what would you
normally do?
(i) Wait till it goes up again [ ]
(ii) Book losses immediately and close the position [ ]
(iii) Wait and hope that price will go up, close the position if it goes below a particular level [ ]
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30. If the market is extremely volatile, which would you prefer?
(i) Trade in cash market [ ] (ii) Trade in Futures market [ ]
(iii) Trade in Options market (iv) Trade in cash and futures simultaneously [ ]
(v) Trade in cash and options simultaneously [ ]
(vi) Do nothing and wait till market condition changes [ ]
31. If the market is bullish, which would you prefer?
(i) Trade in cash market [ ] (ii) Trade in Futures market [ ]
(iii) Trade in Options market (iv) Trade in cash and futures simultaneously [ ]
(v) Trade in cash and options simultaneously [ ]
(vi) Do nothing and wait till market condition changes [ ]
32. If the market is bearish, which would you prefer?
(i) Trade in cash market [ ] (ii) Trade in Futures market [ ]
(iii) Trade in Options market (iv) Trade in cash and futures simultaneously [ ]
(v) Trade in cash and options simultaneously [ ]
(vi) Do nothing and wait till market condition changes [ ]
33. If you feel that the market is directionless, which would you prefer?
(i) Trade in cash market [ ] (ii) Trade in Futures market [ ]
(iii) Trade in Options market (iv) Trade in cash and futures simultaneously [ ]
(v) Trade in cash and options simultaneously [ ]
(vi) Do nothing and wait till market condition changes [ ]
34. If you have received a ‘hot tip’ that the price of a specific stock would go up in next 15 days,
what would you do, among the following alternatives?
(i) Buy in cash market [] (ii) Buy in Futures Market [ ]
(iii) Buy in Options Market [ ] (iv) Do nothing []
35. If given a choice between Futures or Options trading, which segment would you prefer?
(i) Futures [] (ii) Options [ ]
35 a) If you have answered the above question as “Futures”, please mention the reasons:
(i) Higher volume than options []
(ii) More scope for profit than options []
(iii) No need for payment of premium []
(iv) Lower transaction charges than options [ ]
(v) Greater liquidity than options []
(vi) Others, please specify ………………………..
35 b) If you have answered the above question as “Options”, please mention the reasons:
(i) Higher volume than futures []
(ii) Different strike prices []
(iii) Only premium is to be paid []
(iv) Lower risk than futures []
(v) Greater liquidity than futures []
(vi) Others, please specify ………………………..
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G. Questions related to investors perception:
36. Please indicate to what extent each of the following statements reflects your belief:
I believe that…
Parameter Strongly Agree Neutral Disagree Strongly
Agree Disagree
i. Investing in derivatives contracts
are less risky compared to equity
market
ii. Investing in Option contracts are
less risky compared to Futures.
iii. Derivatives are not suitable to
small investors
iv. Derivatives have the ability to
weather the market fluctuations.
v. Investing in Derivatives is much
better in terms of returns than
depositing money in banks.
vi. Derivatives are highly preferred
over equity shares.
vii. Volatility has increased in
equity market after the introduction
of Futures and Options.
viii. Brokers are well educated
about Futures
ix. Brokers are well educated about
Options
x) Only large company shares
should be allowed in derivatives
trading
xi) Derivatives are for risk takers
and not for conservative investors
xii) Investors are generally
unaware of various strategies that
can be adopted in derivatives
trading
37. If somebody promises a fixed return of 10% per year, would you trade futures / options?
(i) Yes [ ] (ii) No [ ]
38. If somebody promises a fixed return of 20% per year, would you trade futures / options?
(i) Yes [ ] (ii) No [ ]
39. Your Experience with Futures and Options has been-
i) Very Good [ ] ii) Good [ ] iii) Average [ ] iv) Bad [ ] v) Worst [ ]
40. Would you suggest this segment to your friends and /or relatives?
(i) Yes [ ] (ii) No [ ]
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41. According to you, awareness about derivatives in India is:
i) Very Low [ ] ii) Low [ ] iii) Neutral [ ] iv) High [ ] v) Very High [ ]
42. Do you expect that the trading in Stock Index Futures and Options in India will
a) Grow very fast [ ] b) Grow Moderately [ ]
c) Grow slowly [ ] d) Can’t say anything [ ]
Thank You
Raghavendra
itsraghs@[Link]
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Appendix - 2
Risk and return of S&P CNX Nifty and Junior Nifty BEFORE the introduction of
derivatives in India
Nifty Junior Nifty
Risk Risk
(Standard (Standard
Year Return Deviation) Return Deviation)
1996 -0.99 1.53 -1.82 1.35
1997 18.28 1.80 13.86 1.52
1998 -19.94 1.78 24.49 2.12
1999 51.54 1.84 96.42 2.14
2000 -15.84 2.00 -49.60 2.89
2001 -17.66 1.63 -62.52 1.95
2002 3.20 1.06 8.47 1.32
Average 2.66 1.66 4.19 1.90
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Appendix - 3
Risk and return of S&P CNX Nifty and Junior Nifty AFTER the introduction of
derivatives in India
NIFTY JUNIOR NIFTY
Risk Risk
(Standard (Standard
Year Return Deviation) Return Deviation)
2002-03 5.92 0.97 8.75 1.24
2003-04 28.33 1.91 48.72 2.14
2004-05 38.86 1.01 41.42 1.09
2005-06 34.27 1.64 18.09 1.95
2006-07 32.24 1.31 50.23 1.38
2007-08 -6.65 2.09 -33.33 2.57
2008-09 6.02 2.95 22.36 3.03
2009-10 21.35 1.34 37.18 1.42
2010-11 6.11 1.07 -0.62 1.10
2011-12 -6.75 1.29 -10.65 1.26
Average 15.97 1.56 18.21 1.72
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Appendix - 4
Jump volatility for Nifty
Before the introduction of derivatives After the introduction of derivatives
Total observations : 1746 Total observations : 2497
No. of times No. of times
jump jump
Outliers volatility is Percentage Outliers volatility is Percentage
noticed noticed
Below -2.74 71 4.07 Below -2.41 140 5.61
Above 2.74 78 4.47 Above 2.61 106 4.25
Total 149 8.54 Total 246 9.86
Jump volatility for Junior Nifty
Before the introduction of derivatives After the introduction of derivatives
Total observations : 1746 Total observations : 2497
No. of times No. of
jump times jump
Outliers volatility is Percentage Outliers volatility is Percentage
noticed noticed
Below -2.90 107 6.13 Below -2.48 166 6.65
Above 3.02 101 5.78 Above 2.76 97 3.88
Total 208 11.91 Total 10.53
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Appendix - 5
Correlation of macroeconomic factors with market indices
Correlation
Macro economic indicator JUNIOR
NIFTY NIFTY
GDP 0.22 0.02
GNP 0.18 -0.05
Indirect Taxes Less Subsidies 0.34 0.11
Net factor income from abroad 0.40 0.68
NNP 0.19 -0.06
GDP of public sector -0.30 0.00
Net domestic capital formation 0.51 0.08
Net Domestic Savings 0.31 0.03
Personal Disposable Income 0.01 0.06
Per Capita GNP 0.36 0.34
Per Capita NNP 0.18 -0.07
Inflation -0.09 -0.14
Interest Rate 0.41 0.24
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Appendix - 6
Regressing Macro Economic Indicators with S&P CNX Nifty:
Macroeconomic Coefficient Std. R2
t-Statistic T*R2
indicator Error
GDP 0.233652 1.788518 0.130640 0.00243 0.02
Net Factor
Income From 0.062226 0.174284 0.357040 0.01788 0.18
Abroad
GDP of Public
Sector -1.037696 1.329599 -0.780458 0.09216 0.09
Net Domestic
Capital 0.627977 0.427385 1.469347 0.26461 0.26
Formation
Interest Rate 0.103761 0.306228 0.338835 0.01613 0.01
Regressing Macro Economic Indicators with S&P CNX Junior Nifty
Macroeconomic Coefficient Std. t-Statistic R2 T*R2
indicator Error
Inflation -0.086561 0.492085 -0.175907 0.00440 0.04
Net Factor
Income From
0.266820 0.279721 0.953881 0.11503 1.15
Abroad
Per Capita GNP 0.688795 0.870006 0.791712 0.08218 0.82
Net Domestic
Capital 0.171469 0.835537 0.205220 0.00697 0.07
Formation
Interest Rate -0.243852 0.513788 -0.474615 0.03117 0.31
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