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Chapter 7 – Summary, Findings and Conclusion
335
Chapter Seven
Summary, Findings and Conclusion
Introduction
Summary
Major Findings
Recommendations
Conclusion
Chapter 7 – Summary, Findings and Conclusion
336
INTRODUCTION
Globalization and liberalization have increased the international trade and financial
transactions manifold in the recent years. It has, in turn, raised all types of risks including
market risk, liquidity risk, price risk and interest rate risk. Managing these risks has
become a major task for finance managers worldwide and it spurred financial innovations
to mitigate risks. This has led to the emergence of a class of innovative financial
instruments called „derivatives‟.
Financial derivative is a widely discussed topic in the recent years due to its
tremendous growth in terms of volume of trade, number of contracts traded and variety of
products. However the complex nature of the product, uncertainties involved in trading and
lack of knowledge about trading techniques are some of the critical issues to be solved.
Moreover house mortgage issue in U.S, fall of Lehman brothers, US recession which in
turn led to global recession, has all created a negative image to financial derivatives.
Skillful use of derivatives is essential to mitigate the loss suffered from spot market.
Hence it is necessary for anyone who handles derivatives to know the art of dealing with
derivatives in an efficient way. The process of reducing loss by efficient use of derivatives
assumes importance and is known as hedging.
This chapter provides a summary of the study and gives some recommendations
based on research findings. This chapter is subdivided into three main sections:
A) Summary
B) Major findings of the study
C) Recommendations.
Chapter 7 – Summary, Findings and Conclusion
337
A) SUMMARY
This study is an earnest attempt to understand some aspects of financial
derivatives as a hedge tool. Though financial derivatives were introduced as a hedge tool, it
is still not widely used. In spite of the measures taken by the regulatory authorities in our
country to control the volume of speculative transactions, derivatives segment remains
mostly a domain of speculators.
Statement of the Research Problem
Existing research literatures do not conclusively present the extent of hedge usage
among individual derivative traders and how far they help in mitigating the risk. Present
study is an earnest attempt to cover this research gap. Following research questions bring
the problem into sharp focus:
• Does Indian derivatives market exhibit hedge effectiveness? If so, to what extent?
• What is the extent of use of derivatives for hedging by traders?
• Is there any room for promoting hedge habits among individual traders?
Objectives
1. To assess the extent of hedge effectiveness of financial derivatives traded in India.
2. To examine the attitude of individual derivative traders towards hedge.
3. To compare the general profile, awareness level and trading beliefs of hedgers and
non-hedgers
4. To identify and evaluate the perceived problems of derivative traders.
5. To analyse the nature of influence of various intermediaries on trading decisions of
individual traders.
6. To make recommendations to improve the functioning of financial derivatives
market, if needed.
Chapter 7 – Summary, Findings and Conclusion
338
Scope and Significance of the Study
Scope of the study is limited to some selected stock and index futures. The study is
confined to the use of derivatives by individual share traders in Kerala. Though derivatives
were introduced as a risk management tool its usage for hedge purpose by individual
traders seems to be lacking. Speculative activities are gaining popularity in the derivative
segment. Hence it is necessary to assess the usage level of derivatives for hedging among
individual traders. This study covers mainly three different aspects 1) extent of hedge
effectiveness 2) need for promoting derivatives as a hedge tool and 3) how to fill the gap if
any, between the hedge effectiveness and the present level of adoption of derivatives to
hedge.
Models Developed for the Study
1. Conceptual model for the study.
2. Working model.
3. Model showing present scenario of Indian derivative market.
4. Financial derivatives as a hedge tool – An acceptance model
Variables for the study
Based on the conceptual model developed for the study, relevant variables were
identified such as coverage of potential loss, satisfaction level, hedge attitude, future
behaviour, awareness, probable loss, risk level, percentage of risk coverage, stock prices,
duration of contracts, variety of contracts and frequency of awareness programs.
Chapter 7 – Summary, Findings and Conclusion
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Hypotheses
As part of the study, 11 hypotheses were developed and tested using appropriate
tools. A summary of the results of hypothesis testing is given below:
Table 7.1: Summary of Hypothesis Testing
Null Hypothesis Test of
Hypothesis
Result
(95% Confidence Level)
There is no significant
difference in the awareness
level of hedgers and non-
hedgers regarding different
aspects of derivatives trading.
T test p value is less than .05 and null
hypothesis is rejected.
There is no significant
difference in the composition of
hedgers and non-hedgers in
different regions of Kerala.
Chi-Square Test p value is greater than .05 and
hence accept null hypothesis
There is no significant
difference in the demographic
pattern of hedgers and
non-hedgers
Chi-Square Test p value is greater than .05 and
hence accept null hypothesis
There is no significant
difference in the distribution of
ranks given by respondents to
different problems in
derivatives trading.
Chi-Square Test p value is less than .05 and hence
reject null hypothesis
Frequency of hedge is
independent of satisfaction on
hedge coverage.
Chi-Square Test p is less than .05. Hence null
hypothesis is rejected
Chapter 7 – Summary, Findings and Conclusion
340
Future behaviour of hedgers is
independent of satisfaction on
hedge coverage
Chi-Square Test Out of four aspects identified for
future behavior, in case of one
aspect „Future use of hedge‟ p
value is less than .05. Hence reject
null hypothesis. But in case of
other three aspects „Recommend
hedge‟, „Would continue to trade‟,
„Welcome new products‟, p value
is greater than .05 and hence null
hypothesis is accepted.
There is no significant
difference in the assistance
obtained by hedgers and non-
hedgers from stock broking
firms.
T test p value is less than .05 in case of
„Advice to hedge‟ hence null
hypothesis is rejected and in other
two cases, „Number of awareness
programs‟ and „Proper training on
how to hedge‟ p value is greater
than .05 and hence accept null
hypothesis.
There is no significant
difference in the distribution of
ranks given by hedgers for the
most influencing intermediaries
Chi-Square Test p value is less than .05 and hence
reject null hypothesis
There is no significant
difference in the distribution of
ranks given by non-hedgers for
the most influencing
intermediaries
Chi-Square Test p value is less than .05 and hence
reject null hypothesis
Futures and spot series are
non-stationary
Unit Root -
Dickey Fuller
Test
p value is less than .05 for first
difference series and hence reject
null hypothesis. Thus futures and
Chapter 7 – Summary, Findings and Conclusion
341
spot series are stationary at first
difference.
Futures and spot series are not
cointegrated
Engle-Granger
test of
Cointegration
p value is less than .05 and hence
reject null hypothesis. Thus futures
and spot series are cointegrated.
Research Design
The study used descriptive research design. Hedge effectiveness was verified with
relevant data and tools. It also involves analyzing the risk perception, risk assumption and
risk mitigation with risk management tools by individual traders.
Sample design for primary data
The respondents for the study were investors/traders of financial derivatives market
with special reference to Kerala. From among the defined population of 65 SBFs only 26
SBFs were having offices in northern, southern and central regions of Kerala. Hence, these
26 SBFs formed the sample frame for selection of respondents. Multi-Stage sampling
technique was used for the selection of respondents from stock broking firms. The whole
of Kerala state was divided into three regions north, south and central. Two districts from
each region were selected using random sampling. From north Kerala Kozhikkode and
Malappuram were selected, from Central Kerala, Ernakulam and Thrissur were selected
and Kottayam and Trivandrum from the South Kerala. From the 26 stock broking firms, 15
were selected on random basis and two branches of these 15 SBFs from each region were
selected at random. Thus, a total of 90 branches were selected for the study. Respondents
from these branches were selected randomly.
Chapter 7 – Summary, Findings and Conclusion
342
Sample size
In case of non-hedgers, standard deviation of pilot study was 13.46. Expected
standard error is taken as 1.5 and Z value at 95% confidence level is 1.96. Hence sample
size of non-hedgers is found to be 310. In case of hedgers, standard deviation of pilot study
was 3.27. Expected standard error is taken as .92 and Z value at 95% confidence level
1.96. Hence sample size of hedgers is 50 respondents.
Tools for data collection
Structured questionnaire, participant and non-participant observation, unstructured
interviews were used for collecting data. Both ranking and scaling questions were included
in the questionnaire. Five point Likert scale was used to measure the awareness while
attitude of investors was measured using semantic differential scale. Behavioural
intentional scale was also used to understand the predictable future behaviour of
respondents.
Pilot Study and Reliability Test
Based on the pilot study a reliability test was conducted and Cronbach alpha of
0.85 for questionnaire 1 and 0.809 for questionnaire 2 was obtained which shows that the
questionnaires are reliable.
Sample Design for Secondary Data
From the sample frame of stock futures in 24 sectors, near month expiry hedge
efficiency was calculated by selecting a sample of 24 stock futures each from 24 different
sectors on random basis. Overall hedge efficiency for three expiries were calculated based
on 15 stock futures randomly selected from the 24 stock futures. Out of the seven market
indices, three were selected, to assess the hedge efficiency.
Chapter 7 – Summary, Findings and Conclusion
343
Tools for analysis
Apart from percentages and descriptive statistics like Mean, Median, Mode,
Standard Deviation etc., tools like Multi-Dimensional Scaling, Cointegration, Error
Correction Model, Z test, Chi-Square test, Friedman test etc. were also used to arrive at
meaningful conclusions.
Period of the study
Secondary data for assessing the hedge effectiveness were compiled for five years
from April 2007 to March 2012. Primary data were collected from the sample respondents
in 2010 and 2011.
Limitations of the study
1. As there were no related studies, difficulty was experienced in developing appropriate
methodology and techniques for the study. Effort has been taken to avoid mistakes.
Alternative techniques can also be used to analyse the data and test the hypotheses to
establish relationships between the variables.
2. There may be a number of variables affecting the trading habits of individuals but
study focuses only on selected number of variables. Hence, there may be inadequate
coverage of some dimensions of derivative application.
3. Financial derivatives are a wider topic with variety of products, but the present study is
limited to hedge effectiveness of only two products, stock futures and index futures.
4. Since the derivative traders using financial derivatives for hedge are few in number, a
small sample size of 50 hedgers could only be collected.
Chapter 7 – Summary, Findings and Conclusion
344
Chapter Scheme
Chapter 1 gives an introduction to the present study and also explains the design of
the study. Chapter 2 presents the literature review, which provides a setting for the study,
gathered from different sources based on which research gap for the study was found out.
Chapter 3 is a theoretical framework of the study covering different concepts and theories,
trends in global scenario, Indian scenario, Hedge mechanism etc. Chapter 4 gives the
analysis of hedge effectiveness of Indian futures market. Chapters 5 assess the hedge
effectiveness of Index futures in Indian derivatives market. Chapter 6 deals with the
analysis of attitude and behaviour of individual traders in Kerala. It covers demographic
profile, awareness level, influence of intermediaries, hedge habits. Chapter 7 concludes the
study with a listing of major findings and recommendations.
B) MAJOR FINDINGS OF THE STUDY
Major findings of this study are summarised below. It is categorised under two
main sections Hedge effectiveness and Attitude of derivative traders.
a) HEDGE EFFECTIVENESS
Assessing the extent of hedge effectiveness of Indian derivatives was one of the
main objectives of the study. This section is again divided into three subsections; Hedge
efficiency of Indian stock futures and indices, Hedge effectiveness of Indian stock futures
and indices, Satisfaction level of hedgers.
Hedge Efficiency of Indian Stock Futures and Indices
Results of analysis on hedge efficiency of near month expiries and all expiries
combined together are presented here separately.
Chapter 7 – Summary, Findings and Conclusion
345
Near Month Hedge Efficiency:
1. Vast majority of stock futures (96%) shows average hedge efficiency of 80% and
above.
2. 38% of stock futures exhibit an average hedge efficiency of 100% and above, while
50% exhibit an average hedge efficiency of 90 to 100% and 8% of the stock futures
exhibit an average hedge efficiency of 80 to 90% and only 4% have hedge
efficiency of less than 80%.
3. Backwardation and Contango analysis shows that in Indian stock futures market,
instances of hedge efficiency were more than the instances of hedge inefficiency
between the periods 2007-08 to 2011-12.
4. October-December quarter seems to be the efficient quarter with highest ratio of
hedge efficiency.
Overall Hedge Efficiency:
5. Regarding overall hedge efficiency, 80% of Indian stock futures exhibit an average
hedge ratio of 80% or above
6. Around 70% of stock futures show that near month contracts are more efficient
while the rest 30% shows that next month futures are more efficient. Hedge
efficiency of far month contracts is comparatively less and seems to be more
volatile.
7. Backwardation and Contango analysis shows that in case of 73% of stock futures,
instances of hedge efficiency are more than the instances of hedge inefficiency.
8. In a vast majority of stock futures (86%), frequency of positive hedges is higher for
near month contracts followed by next month and then far month contracts.
Chapter 7 – Summary, Findings and Conclusion
346
Hedge Effectiveness of Stock Futures and Index Futures
9. Based on the average hedge efficiency of near month futures, 95.8% of Indian
stock futures are found to be effective as per the standard ratio 80% to 120% set by
SFAS 133.
10. Based on yearly average hedge efficiency of near month futures, 67% of stock
futures are found to be effective in all the five years under study.
11. Based on the overall hedge efficiency of three expiries for the last five years from
2007-08 to 2011-12, 80% of stock futures are found to be effective when compared
with the standard ratio.
12. Error correction model shows that the hedge efficiency of S&P CNX Nifty is
82.29% which can be inferred as effective according to standard set by SFAS 133.
However Bank Nifty and CNX IT have a hedge efficiency of only 72.97% and
50.67% respectively. Hence they are found to be ineffective as it is less than the
standard set by SFAS 133.
Satisfaction Level of Hedgers
13. Majority, 60% of hedgers have a regular habit of hedging.
14. On an average, hedgers are having only 50% hedge coverage.
15. Hedgers are found to be satisfied in all aspects of hedging except awareness
programs conducted by stock broking firms.
16. Chi-Square test of hypothesis shows that frequency of hedge is dependent on
satisfaction of hedge coverage.
Chapter 7 – Summary, Findings and Conclusion
347
17. Hypothesis testing shows that future use of derivatives for hedge is dependent on
the satisfaction of hedge coverage.
18. Regarding preference of products for hedge, 34% of hedgers prefer stock options
while 26% each prefer index futures and index options equally. Least preferred is
stock futures.
b) ATTITUDE OF DERIVATIVE TRADERS
This subsection presents the results of analysis of five different aspects;
Demographic profile, behavior of derivative traders, Beliefs and emotions, Problems in
derivative trading and Role of intermediaries.
Demographic Profile of Respondents
19. Demographic details show that 43.05% of derivative traders are in the age group 30
to 45 years, 42.22% are having Degree as their educational qualification and
50.56% are Employees in private or public sector.
20. Majority of the respondents, 53.61%, have less than five years of experience in
stock market and 38.9% have 1 to 2 years of experience in derivatives market.
21. Chi-Square test result shows that there is no significant difference in the
demographic pattern of hedgers and non-hedgers.
Behaviour of Derivative Traders
22. Regarding the trading habit, 36.94% are having a habit of frequently trading in
derivatives while 28.61% trade occasionally, 20.28% trade always and 14.17%
trade rarely in this segment.
Chapter 7 – Summary, Findings and Conclusion
348
23. Regarding preference of products for trading, out of 360 respondents 119
respondents (33%) give first preference to stock futures, 77respondents (21%) give
first preference to stock options, 81(23%)to index futures and 83(23%) to index
options.
24. Regarding future behaviour of traders study finds that hedgers are of the opinion
that they will definitely continue to trade in derivatives while non-hedgers are of
the opinion that they may probably continue to trade.
Beliefs, Emotions and Feelings of Derivative Traders
25. Mean score of awareness level of non-hedgers is 20.98 and of hedgers is 27.82 in a
scale with maximum score 40which shows that non- hedgers are aware of different
aspects of derivatives trading while hedgers are fairly aware. T test result shows
that there is significant difference in the awareness level of hedgers and non-
hedgers. It is inferred that hedgers are more aware than non-hedgers, as the mean
score is higher for hedgers.
26. Around 56% of non-hedgers are least aware about the concept called Hedge. Vast
majority of non-hedgers 87% have given preference to trade in derivatives due to
several reasons like profit making, fund leverage, to supplement income etc. Only
13% have given first preference for „covering the loss from spot market‟ as the
primary reason for trading on derivatives.
27. Mean score of attitude of hedgers towards derivative trading is 39.18 and mean
scores of attitude of non-hedgers is 37.66 in a scale with maximum score of 60.This
can be inferred as both hedgers and non-hedgers are having mildly positive belief
towards different aspects of trading.
Chapter 7 – Summary, Findings and Conclusion
349
28. 66.1% of non-hedgers are of the opinion that lack of awareness about hedge is the
reason for not using derivatives for hedge. Vast majority of non-hedgers (83%) are
interested in learning hedge techniques.
Problems Faced by Derivative Traders
29. Chi-Square test shows that there is significant difference in the ranking given by
respondents to different problems faced in derivatives trading.
30. The study found that problems faced by derivative traders can be viewed from two
different dimensions. Firstly based on Services provided and secondly on the basis
of Market mechanism. From the point of view of Services provided, „lack of
training‟ was found to be the most crucial problem while from the point of view of
Market mechanism, „maintenance of margin money‟ was found to be the most
severe problem faced by derivative traders.
Role of Intermediaries
31. Both hedgers and non-hedgers are of the opinion that stock brokers should promote
hedge. It was found that lack of support from SBFs was the main reason why non -
hedgers are not doing hedge.
32. Both hedgers and non-hedgers rarely get assistance from SBFs and both are neutral
regarding the opinion about effect of such assistance, awareness program etc.
33. Friedman test result shows that for hedgers „experienced people‟ seems to be the
most influencing one followed by SBFs. For non-hedgers, SBFs seems to be the
most influencing intermediary followed by experienced people.
34. Hedgers are of the opinion that friends and relatives have influenced them to hedge
rather than SBFs, awareness programs, etc.
Chapter 7 – Summary, Findings and Conclusion
350
Thus, based on the above findings, present scenario of financial derivatives
segment can be depicted as follows:
GAP
80% to 95% Satisfaction of
hedgers
Fig.7.1: Present Scenario – A Schematic Representation
Hedge
Effectiveness
On an average
hedge ratio is
only 50%
LOW USAGE LEVEL
LOW AWARENESS
LESS TRAINING
LESS SUPPORT FROM
SBFs
FUTURE BEHAVIOUR
„PROBABLY‟
MARGIN MONEY
DISSATISFED with the
outcome OF
AWARENESS
PROGRAMS
Chapter 7 – Summary, Findings and Conclusion
351
From the study it was found that there is a wide gap between hedge effectiveness
on one side and lack of its usage by traders on the other side as clearly depicted in fig.7.1.
Hence the question arises, why hedge habits are lacking when there is enough logic for it?
Some of the reasons for this are lack of promotional activities, lack of awareness and lack
of training on technical aspects of hedge. As far as the hedgers are concerned their hedge
coverage ratio is only around 50% while the secondary result shows that a good strategy
of hedge may even result in 80% to 95% hedge coverage. How can this gap be reduced?
How can the hedge habits be promoted? How can the hedge coverage ratio be increased?
These questions lead to the necessity of providing recommendations for improving the
efficiency of financial derivatives market
C) RECOMMENDATIONS
To mitigate the gap between hedge effectiveness on one side and less usage of
derivatives for hedge on the other side, several promotional measures need to be taken.
An important problem to be solved is how to improve the average hedge coverage
ratio from 50% to 80% or more. Proper guidance should be given to hedgers in this regard.
Most of the hedgers are not aware of their optimal hedge ratio. If a proper hedge portfolio
is created hedge coverage can be increased to around 80 to 90%. Following steps is
recommended to be followed to increase the hedge coverage:
1. Identify the amount exposed to risk.
2. Calculate optimal hedge ratio.
3. Hedge the amount based on optimal hedge ratio.
4. Select proper combination of derivative products for hedge.
Chapter 7 – Summary, Findings and Conclusion
352
Lack of training and Maintenance of margin money is yet another problem. Stock
broking firms should play a significant role by providing proper training sessions to
traders. Opportunities to have special forums for discussions with experts in derivatives
trading should be available. Daily settlement and maintenance of margin money has to be
modified. Traders can be given more time to fill the variation in the margin money. This
will simplify the risk to traders and as a result more traders will be attracted to trade.
Awareness level of derivative traders on hedge concepts, especially non-
hedgers‟, is very poor. To increase the awareness on hedge, stock broking firms should
conduct awareness programs with special focus on hedge strategies. A demo trading
session can be conducted. Special focus should be given to extent of risk exposure, extent
of coverage, hedge ratio, popular strategies like straddle, strangle, delta hedge etc. People
entering derivatives market should have a basic knowledge about different aspects of
trading. Special training sessions on technical aspects need to be conducted on regular
basis and course completion certificates can be issued. Stock exchanges should introduce
new certification programs with special focus to hedge.
Non-hedgers are mostly influenced by stock broking firms. Hence role played by
stock broking firms in promoting hedge habits of non-hedgers should be improved. Special
aid can be given by regulatory authorities to stock broking firms, to take promotional
measures.
Lack of experts in this field is yet another problem. To solve this problem a panel
of investment experts who are specialized in different trading strategies can be formed.
Each stock broking firm may have an investment expert who can guide the traders in
selecting proper hedge position.
Chapter 7 – Summary, Findings and Conclusion
353
The major recommendations can be summarised as follows:
1. Practice of hedge based on optimal hedge ratio is to be popularized.
2. Separate training sessions on hedge can be conducted.
3. Stock exchanges can introduce new certification programs with special focus to
hedge.
4. Each stock broking firm may have an investment expert who can guide the traders
in selecting proper hedge strategy.
5. Present system of maintenance of margin money need to be simplified so as to
reduce the burden of traders. Traders can be given more time to fill the variance in
margin money.
6. Stock broking firms, as a major influencing intermediary, should undertake more
advertising campaigns and use of celebrities to advertise can attract more attention
from general public.
7. A group of investment experts can be made available to clear the doubts of traders
through different media like telephone, emails, online communication etc.
8. SEBI, which is the regulatory body and stock exchanges like NSE and BSE and
regional stock exchanges, may set up separate funds to promote the role of SBFs.
AN ACCEPTANCE MODEL
The study has developed a notable model for promoting financial derivatives as a
hedge tool. By undertaking proper measures, the gap between hedge effectiveness and its
usage level can be reduced. Following Acceptance Model Fig 7.2 depicts how the critical
issues can be handled efficiently for a better functioning of financial derivatives market.
Chapter 7 – Summary, Findings and Conclusion
354
Fig.7.2: Financial Derivatives as a Hedge Tool – An Acceptance Model
Awareness Programs
Technical Training Sessions
Sessions on Hedge Strategies
Increase in awareness level
of Non-hedgers
Optimal Hedge Ratio-
Proper combination
of derivative products
Increase in Hedge
coverage ratio to 80%
and above
Satisfaction on Hedge coverage
Satisfaction on Training sessions by SBFs
Satisfaction on Margin money
Special forums to
clear clarifications
of investors
Hedge Management and
Promotional Measures
Reduction in Margin
money
Increase in usage
level of Hedge
Future behaviour will
shift from “probably”
to “definitely”
Financial
Derivatives as a
Hedge Tool
Increasing role of Stock
Broking Firms (SBFs)
Chapter 7 – Summary, Findings and Conclusion
355
CONCLUSION
Derivatives are one of the fastest growing and widely used financial innovations
which have their impact on financial markets, monetary policies, investment avenues,
regulatory framework and even on research and academics. Derivatives segment has
emerged as an area of utmost care and concern due to its anomalous behaviour.
Innovations in financial theory, increased computerization and changes in capital market
have all contributed to the growth of financial derivatives market.
It was noted that Korean exchange stood first among the world exchanges in terms
of the volume of derivative contracts traded in 2011 while the Indian exchange, NSE, was
in the fifth position. But in 2012, Chicago Mercantile Exchange – CME Group occupied
the top position and NSE has come up to the third position. It is interesting to note that
NSE secures the top five positions in case of all the three products namely stock futures,
Index futures and index options except stock options. While comparing the derivatives
traded in different regions, it was noted that Asia pacific region has the major share. Equity
derivatives have the maximum growth rate when compared to other categories like
commodity derivatives, currency derivatives etc. On an average the annual growth rate of
derivatives traded in India is 24%. It was noted that index options have the maximum
growth rate in 2012 when compared to index futures, stock options and stock futures.
This study has mainly focused on the hedge effectiveness of Indian futures market
and also the attitude and behaviour of financial derivative traders. From the detailed
analysis of primary and secondary data it is concluded that, on one side Indian derivatives
market is effective in hedging while on the other side majority of traders are unaware of
Chapter 7 – Summary, Findings and Conclusion
356
proper hedge techniques. Over use of speculation will dampen the efficient derivative
system and hence steps should be taken to improve the hedge habits of derivative traders.
Study also assessed traders‟ beliefs and behavioural patterns and arrived at the conclusion
that there is a need to popularize hedge habits among derivative traders.
Thus, it can be concluded that by undertaking several innovative measures the
usage level of financial derivatives for hedge can be increased. By reducing some of the
complexities in the system like lack of training, margin money maintenance etc. new
traders will be attracted to hedge. It is necessary to maximize the participants in the
derivatives segment so as to have a smooth flow of Indian derivatives segment. Study
concludes that promoting financial derivatives as a hedge tool is need of the hour. This is
possible by bridging the gap between extent of hedge effectiveness on one side and its less
popularity among derivative traders on the other side.