CHAPTER – III

REVIEW OF LITERATURE
3.1. INTRODUCTION:

In this growing mixed economic system in developing countries like India, production and
operation gets increased every year due to liberalization, privatization and globalization concepts.
Globalization provides big platform, more opportunities to extend the domestic business s
throughout the world and this create plenty of job opportunities in India both in manufacturing
and service sector. Hence Indian individual income is getting increased and they search best
investment avenues to invest their surplus money for their future needs. Indian financial system
contains various financial institutions to accept the public savings under various financial
schemes and plans. Every financial scheme and plan is having its own pros and cons and the
investors have their own preferences for different schemes and plans. The major areas of
investments available for Indian Investors include Equity Market, Derivatives, Bonds,
Debentures, Commodity market etc. Indian investors choose different areas according to their
perception and attitudes. Some of them are successful with their investments and some cannot
enjoy the fruit in time due to several reasons of their investment products. Today commodity
market proves to be a very major avenue of investment. Commodity markets are markets where
raw or primary products are exchanged. These raw commodities are traded on regulated
commodities exchanges, in which they are bought and sold in standardized contracts. Commodity
market is a place where trading in commodities takes place. It is similar to an equity market, but
instead of buying or selling shares one buys or sells commodities. The researcher likes to study
about the investors’ preference in various investment Avenues of commodity market products and
also to identify the relationship between the various factors influencing the investors’ decisions on
commodity market
According to N.R. Institute of Management Ahmadabad, Investors consider factor like
global economy, availability of commodity and others things during investing in commodity and
earn money by doing technical and fundamental analysis from their brokers.
As the activities on a stock market tend to be specialized and not understood by common
people, this chapter will give some basic definitions and review stock market history, participants,
operations and importance, so as to serve as a basis for understanding how stock market can help
promote investment and trade in a monetary zone. Besides, review of other studies will be done
in this chapter to give various dimensions of stock market in an economy.
Media and friends are powerful communicating networks for expansion. It has been
that, respondents are investing their income in diversified portfolio and less risky assets. There

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has been seen that coffee, wheat and cotton are more dealing commodity and investor believe

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that commodity market have good opportunist market in future and most of investor invest when
there is favorable price in market. The commodity futures markets are experiencing a good
growth in the recent past
Various researchers in the past have tried to study the investor behaviors and their
preference towards derivative markets in India. Bose and Suchismita (2002) in their study
examined derivative as a risk management tool. The researchers found that Derivatives products
provide certain important economic benefits such as risk management or redistribution of risk
away from risk - averse investors towards those more willing and able to bear risk. Derivatives
also help price discovery, i.e. the process of determining the price level for any asset based on
supply and demand. These functions of derivatives help in efficient capital allocation in the
economy; at the same time their misuse also poses a threat to the stability of the financial sector
and the overall economy
Kumar R. and Chandra A(2002) Critically examined arbitrage opportunities in derivative
market. They concluded that individuals often invest in securities based on approximate rule of
thumb, not strictly in tune with market conditions. Their emotions drive their trading behavior,
which in turn drives asset (stock) prices. Investors fall prey to their own mistakes and sometimes
others mistakes, referred to as herd behavior. Markets are efficient, increasingly proving a
theoretical concept as in practice they hardly move efficiently. The purely rational approach is
being subsumed by a broader approach based upon the trading sentiments of investors
The under pricing of initial public offerings (IPOs) is referred to in the literature as one of
the Anomalies observed in primary markets all over the world. The extent of it, however, varies
From country to country. Underpricing refers to the positive initial returns over the offer to listing
dates of the new issues. It is defined as the percentage difference between the closing price on the
listing date from the offer price of the issue it is a cost to the issuers and has drawn considerable
attention in the academic literature over the last three decades. Gade Surendar and Dr. S.
KamaleshwarRao (2011) Companies raise capital in the primary market by way of an initial
public offer, rights issue or private placement. An Initial Public Offering (IPO) is one through
which an unlisted company makes either a fresh issue of securities or an offer for sale of its
existing securities or both for the first time to the public. This paves way for listing and trading of
the issuer’s securities. IPOs deepen the market, diversify investor’s portfolios, reduce volatility in
stock prices, bring domestic investors money into the market and attract Foreign Institutional
Investor funds. Qiming Wang (2010) the price clustering of Initial Public Offerings (IPOs) in the
secondary market trading during the first 240 trading days after their IPO dates. The results
indicate the huge difference between the integer price frequency of IPOs in the primary market
and that of matched stocks in the secondary market almost disappears on the first trading day after
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IPO. S S Kumar (2010) this study examines the performance of IPOs issued through the book
building process in India over the period 1999- 2006. The sample comprises 156 firms that
offered their shares through the book building route on the NSE. Upon listing the IPOs on an
average offered positive returns (after adjusting for market movements)to investors and a large
part of the closing day returns on the listing day were accounted for by the opening returns. In the
long run the IPOs offered positive returns up till twenty four months but subsequently they
underperform the market.

In order to increase the awareness towards online share trading various awareness programs are
conducted by BSE in various cities of India. The Investor Awareness program covers extensive
topics like Instruments of Investment, Portfolio approach, Mutual funds, Tax provisions, Trading,
Clearing and Settlement, Rolling Settlement, Investors' Protection Fund, Trade Guarantee Fund,
Dematerialization of shares, information on Debt Market, Investors' Grievance Redressal system
available with SEBI, BSE & Company Law Board, information on Sensex and other Indices,
workshops and Information on Derivatives, Futures and Option.

Nagy and Obenberger (1994), a questionnaire was prepared that included 34 factors influencing
individual investors‟ behavior such as expected corporate earnings, diversification needs,
feelings for firm‟ s products and services, past performance of stocks, past performance of their
own portfolio and stock broker recommendations to name a few.

Barents Group LLC (1997) studied that India‟ s household savings and foreign investors are
key sources of this capital and can and will be increasingly attracted to more efficient, safe and
transparent market. Retail investors in India are mostly short -term traders, and day trading is not
uncommon. To the extent that buying publicly traded equities is perceived as a risky and
speculative short -term activity, many potential investors will simply avoid capital market
instruments altogether in deciding to allocate savings.

R. Dixon and R.K. Bhandari (1997) said in their study that consequently derivative instruments
can have a significant impact on financial institutions, individual investors and even national
economies. Using derivatives to hedge against risk carries in itself a new risk was brought sharply
into focus by the collapse of Barings Bank. There is a clear call for international harmonization
and its recognition by both traders and regulators. There are calls also for a new international
body to be set up to ensure that derivatives, while remaining an effective tool of risk management,
carry a minimum risk to investors, institutions and National/global economies. Considers the

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expanding role of banks and securities houses in the light of their sharp reactions to increases in
interest rates and the effect their presence in the derivatives market may have on market volatility

Yoon Je Cho (1998) showed in his study that increasing turnover figures in the Indian stock
exchanges from 1994 -95 to 1996 -97, implying that they are dominated by speculative
investments, which is not unusual in emerging markets. However, trading volumes in the Indian
capital market are fairly large compared to those in other emerging markets. The substantial
increase in turnover may be at contributed primarily to the expansion of the NSE‟ s trading
network. But this also reflects the fact that the Indian stock market is dominated by speculative
investments for short - term capital gains, rather than long term investments.

Patrick McAllister and John R. Mansfield (1998) stated that derivatives have been an
expanding and controversial feature of the financial markets since the late 1980s. They are used
by a wide range of manufacturers and investors to manage risk. This paper analyses the role and
potential of financial derivatives investment property portfolio management. The limitations and
problems of direct investment in commercial property are briefly discussed and the main
principles and types of derivatives are analyzed and explained. The potential of financial
derivatives to mitigate many of the problems associated with direct property investment is
examined.

According to de Roon, Frans A, Theo E.Nijman And Chris Veld(2000). “Hedging pressure
effect in futures markets ”journal of finance, we present a simple model implying that futures risk
premium depend on both own-market and cross market hedging pressures. Empirical evidence
from 20 futures markets divided into four groups (financial, agricultural, mineral and currency)
indicate that, after controlling for systematic risk, both the futures own hedging pressure and
cross-hedging pressures from within the group significantly affect futures returns. These effects
remain significant after controlling for a measure of price pressure. Finally, we show that hedging
pressure also contains explanatory power for returns on the underlying assects as predicted
bymodel.”(PP.1437)

Routledge, Seppi,and Spatt (2001) analyze the term structures of both the price level and
volatility of commodity futures prices by adopting the aforementioned rational expectations
model of storage. They highlight several results. First, there is a positive correlation between the
futures spread and commodity inventory, which Gorton, Hayashi, and Rouwenhorst (2013)
confirm using detailed inventory data in a large set of commodities. Second, inventory buffers the
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impact of temporary supply and demand shocks on the spot price and thus mitigates the

6
downward sloping volatility curve attributed to the mean reversion of the supply and demand
shocks by Samuelson (1965). This prediction is consistent with the earlier finding of Fama and
French (1988) that among industrial metals, futures prices are less variable than spot prices when
inventory is low and that the variability is similar when inventory is high.

According to Kent and Siew (2001), common behavior the most investors do when making
investment decision are: not participating in all asset and security categories; exhibiting loss-
averse behavior; using past performance as an indicator of future performance in purchase
decisions; trading too aggressively; behaving on status quo; not always forming efficient
portfolios; behaving parallel to each other; and getting being influenced by historical high or low
trading stocks

Abdulla Yameen (2001) delivered massage, investors will need to be alert to any new
development in capital market and take advantage of the Investor education and Awareness
Campaign program which to be undertaken by the Capital market Section to acquaint of the risks
and rewards of investing on the Capital market. Speech was also focused on to create a new breed
of financial intermediaries, which will deal on the market for their clients. These intermediaries
have to be professionals with quite advanced knowledge on stock exchange operations,
techniques, and law and companies valuation. Investors depend to a large extent on their
professional advice when investing on the market. Furthermore, these intermediaries must be men
of integrity and honesty as they would deal with clients‟ money Confidence of investors in these
professionals is a key to the success of the capital market.

Makbul Rahim (2001) argued in his speech that the regulatory framework must provide the right
environment for the development and the growth of the market. High standards of probity and
professional conduct have to be maintained and reach world class standards. Integrity is very
important as well confidence. The development of a proper free flow of information and
disclosure help s investors to make informed investment decisions.

P. M. Deleep Kumar and G. Raju (2001) showed that the capital market is becoming more and
more risky and complex in nature so that ordinary investors are unable to keep track of its
movement and direction. The study revealed that the Indian market is probably more volatile than
developed country markets, which is probably why a much higher proportion of saving s in
developed countries go into equities More than half of individual shareowners in India belonged
to just five cities. The distribution of share ownership by States and Union Territories show that
7
just five States accounted for 74.7 percent of the country’s share ownership population and 71.7
percent of the aggregate value of the are holdings of individuals in India. Among the five States
Maharashtra tops the list with Gujarat as a distant second followed by West Bengal, Delhi and
Tamil Nadu In the midpoint of the study also argued that introduction of derivatives is the first
step to hedge the risk of unfavourable movement in the market. This will also lower transaction
cost and provides depth and liquidity to the market
.
Peter Carr and Dilip Madan (2001) disclosed that generally does not formally consider
derivatives securities as a potential investment vehicles. Derivatives are considered at all, they are
only viewed as tactical vehicles for efficiently reallocating funds across broad asset classes, such
as cash, fixed income, equity and alternative investments. They studied that under reasonable
market conditions, derivatives comprise an important, interesting and separate asset class,
imperfectly correlated with other broad asset classes. If derivatives are not held in our economy
then the investor confines his holdings to the bond and the stock and the optimal derivatives
position is zero.

Prof. Peter McKenzie (2001) in his speech at seminar investors have a choice instead of placing
their money in only one company they can pick areas of growth and move their money, buying
and selling and placing it where it is going to be most profitable. The individual investor does not
have to make an individual decision where to place his savings. These decisions are made by an
expert fund manager, which would spread the risk by spreading the investments across different
sectors of the economy.

S. M. Imamual Haque and Khan Ashfaq Ahmad (2002) argued that the sluggish trends in
primary equity markets need to be reverse by restoring investors‟ confidence in market. Savings
for retirement essential seek long term growth and for that investment in equity is desirable. It is a
well established fact that investments in equities give higher returns than debt and it would,
therefore, be in the interest of the banks to invest in equities.

Hong Kong Exchanges and Clearing Ltd. (2002) surveyed on derivatives retail investors, and
argued first based on empirical evidence that years of trading experience and usual deal size have
a positive correlation. Second, Male investors traded to trade more frequently than female
investors. Third, the usual deal size of investor with higher personal income traded to be larger.
Fourth majority of respondents are motivated by their stock trading experience to start derivatives
trading. Fifth, trading for profit is the key reason for derivatives trading other than high rate of
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return, hedging, etc. Sixth, the most significant motivating factors are more liquid market and
more transparent market. Seventh, majority of traders are infrequent in trade - 3 times or less in a
month and Index futures is the most popular product to trade most frequently. Ninth, a large
proportion of the investors invest in exchange cash products than derivatives or investment
avenues. Through empirical evidence form investor’s opinion, study argued that the liquidity of
derivatives products other than futures is low. High transaction costs or margin requirement is the
barrier for active participation in derivatives market. But also shows that more active traders do
not have much complaint towards transaction costs and margin requirement.

Warren Buffet (2002) argued that derivatives as time bombs, both for the parties that deal in
them and the economic system. He also argued that those who trade derivatives are usually paid,
in whole or part, on “earnings” calculated by mark to - market accounting. But often there is no
real market, and “mark -to -model” is utilized. This substitution can bring on large – scale
mischief. In extreme cases, mark - to - model degenerates into mark - to - myth. Many people
argue that derivatives reduce systemic problems, in that participant who can’t bear certain risks
are able to transfer them to stronger hands. He said that the derivatives genie is now well out of
the bottle, and these instruments will almost certainly multiply in variety and number until some
event makes their toxicity clear.

Swarup K. S. (2003) empirically found that equity investors first enter capital market though
investment in primary market. The main reason for slump in equity offering is lack of investor
confidence in the primary market. It appeared from the analysis that the investors give importance
to own analysis as compared to brokers‟ advice. They also consider market price as a better
indicator than analyst recommendations. Accordingly number of suggestive measures in terms of
regulatory, policy level and market oriented were suggested to improve the investor confidence
in equity primary markets.

Merikas and Prasad (2003) adopt a modified questionnaire to analyze factors influencing Greek
investor behavior on the Athens Stock Exchange (ASE). According to their findings, individuals
base their purchase decisions on economic criteria combined with other diverse variables

Leyla Şenturk Ozer, Azize Ergeneli and Mehmet Baha Karan (2004) studied that the risk
factor is one of the main determinants of investment decisions. Market participants that are
rational investors ultimately should receive greater returns from more risky investments. They
also concluded that the crisis and resulting deep recession in 2002 changed many things,
9
including market confidence of investors and financial analysts. In addition to decreasing trading
volume of Istanbul Stock Exchange (ISE), the number of individual investors reduced and
investment horizon of investors shortened and liquid instruments.

Shenbagraman (2004) reviewed the role of some non-price variables such as open interests,
trading volume and other factors, in the stock option market for determining the price of
underlying shares in cash market. The study covered stock option contracts for four months from
Nov. 2002 to Feb. 2003 consisting 77 trading days. The study concluded that net open interest of
stock option is one of the significant variables in determining future spot price of underlying
share. The results clearly indicated that open interest based predictors are statistically more
significant than volume based predictors in Indian context. The following exhibit gives the
snapshot view of the results of studies on volatility effect of Stock Index Futures.
FII Trading - All the existing studies found that the Equity return has a significant and positive
impact on the FII (Agarwal, 1997; Chakrabarti, 2001; and Trivedi & Nair, 2003). But given
the huge volume of investments, foreign investors could play a role of market makers and book
their profits i.e., they can buy financial assets when the prices are declining thereby jacking-up the
asset prices and sell when the asset prices are increasing (Gordon & Gupta, 2003). Hence, there is
a possibility of bi-directional relationship between FII and the equity returns.

Masih AM, Masih R, Quarterly Review of Economics and Finance, 2007, Volume: 37, Page:
859-885, “Global Stock Futures: A Diagnostic Analysis of a Selected Emerging and Developed
Markets with Special Reference to India”, Tools used: correlation coefficients , granger’s
causality test, augmented Dicky Fuller test (ADF), Elliott, Rothenberg and Stock point optimal
test. The Authors, through this paper, have tried to find out what kind of relationship exists
between emerging and developed futures markets of selected countries.

Jennifer Reynolds-Moehrle (2005) used a sample of derivative user and non - user firms; they
came to know that analysts‟ forecast accuracy increased and that unexpected earnings are
incorporated into subsequent earnings forecasts to a greater extent subsequent to disclosure of
sustained hedging activity. Additionally, the findings indicated an increase in the earnings - return
relation in the hedging activity period.
Rajeswari, T.R. and Moorthy, V.E.R.(2005) said that expectations of the investors influenced
by their perception and human generally relate perception to action. The study revealed that the
most preferred vehicle is bank deposit with mutual funds and equity on fourth and sixth
respectively. The survey also revealed that the investment decision is made by investors on their
10
own, and other sources influencing their selection decision are news papers, magazine, brokers,
television and friends or relatives.
Chris Veld and Yulia V. Veld - Merkoulova (2006) found that investors consider the original
investment returns to be the most important benchmark, followed by the risk - free rate of return
and the market return. Study found that investors with longer time horizon would generally be
better off investing in stocks compared to investors with shorter time horizon. They knew through
the question on risk perceptions that investors who are more risk tolerant would benefit from
relatively larger investment in stocks. Their study showed the investors optimize their utility by
choosing the alternative with the lowest perceived risk.

Hussein (2006) in his study tries to identify the factors influencing the UAE investor behavior on
the Dubai Financial Market and Abu Dhabi Securities Market. Questionnaire was used in which
thirty-four items that belong to five categories (self-image / firm-image coincidence, accounting
information, neutral information, advocate recommendation and personal financial needs) were
used to collect data. He identified six most influencing factors by order of importance, viz.,
“expected corporate earnings”, “get rich quick”, “stock marketability”, “past performance of the
firm‟ s stock”, “government holdings”, “the creation of the organized financial markets”; and
five least influencing factors such as, “expected losses in other local investments”, “minimizing
risk”, “expected losses in international financial markets”, “family member opinions” and “gut
feeling on the economy”.

G.N.Bajpai (2006) showed that continuously monitors performance through movements of share
prices in the market and the threats of takeover improves efficiency of resource utilization and
thereby significantly increases returns on investment. As a result, savers and investors are not
constrained by their individual abilities, but facilated by the economy’s capability to invest and
save, which inevitably enhances savings and investment in the economy. Thus, the capital market
converts a given stock of investible resources into a larger flow of goods and services and
augments economic growth. The study concluded the investors and issuers can take comfort and
undertake transactions with confidence if the intermediaries as well as their employees (i.) follow
a code of conduct and deal with probity and (ii) are capable of providing professional services.

J. K. Nayak (2006) interpreted the preferred mode of investment is first equity, banks, mutual
fund and then any other in a descending order. It means Investor‟ s faith has increased and their
risk taking ability has also increased. One thing that could be drawn from this study is that
problems are mostly broker related and therefore that is one area where reforms are required. The
11
investors feel that the amount of knowledge available on the equity market is not satisfactory.
Investors, it appears, need to be educated more .Investors still considered the capital market as
highly risky. But from the investment pattern from the descriptive statistics it seems that the
number of people willing to invest in capital market has increased

Narender L. Ahuja (2006) expressed Futures and options trading helps in edging the price risk
and also provides investment opportunity to speculators who are willing to assume risk for a
possible return. They can also help in building a competitive edge and enable businesses to
smoothen their earnings because non hedging of the risk would increase the volatility of their
quarterly earnings. At the same time, it is true that too much speculative activity in essential
commodities would destabilize the markets and therefore, these markets are normally regulated as
per the laws of the country.

Bose, Suchismita (2006) conducted research on “The Indian Derivatives Market Revisited” in the
year 2006. They found that Derivatives products provide certain important economic benefits
such as risk management or redistribution of risk away from risk-averse investors towards those
more willing and able to bear risk. Derivatives also help price discovery, i.e. the process of
determining the price level for any asset based on supply and demand. These functions of
derivatives help in efficient capital allocation in the economy; at the same time their misuse also
poses a threat to the stability of the financial sector and the overall economy.
Liquidity

Dheeraj Mishra, R Kannan and Sangeeta D Mishra (2006), tried to find out the spot - future
parity relationship in case of index futures in the Indian stock market. NSE Nifty has been chosen
as underlying asset. It also aims at exploring different factors responsible for the violation of spot-
future parity relationship. It was found that there exists a theoretical relationship between spot,
futures and other relevant variables as dividend yield, maturity etc. the paper also aimed at finding
out whether there exists an arbitrage profit due to violation of spot future. It was found that
arbitrage profits are higher for far month future contracts than for near month future contracts.
Arbitrage profits are more for undervalued future markets than overvalued future markets.

Sen Shankar Som and Ghosh Santanu Kumar (2006) studied the relationship between stock
market liquidity and volatility and risk. The paper also deals with time series data by applying
“Cochrane Orchutt two step procedures”. An effort has been made to establish a relation between
liquidity and volatility in this paper. It has been found that here is a statistically significant
12
negative relationship between risk and stock market liquidity. Finally it is concluded that there is
no significant relationship between liquidity and trading activity in terms of turnover.

Randall Dodd and Stephany Griffith -Jones (2006) studied that derivatives markets serve two
important economic purposes: risk shifting and price discovery. Derivatives markets can serve to
determine not just spot prices but also future prices (and in the options the price of the risk is
determined). In the research, interviews with representatives from several major corporations
revealed that they sometimes prefer to use options as a means to hedge .They also argued
derivatives have a potential to encourage international capital inflows.

K. Ravichandran (2007) argued the younger generation investors are willing to invest in capital
market instruments and that too very highly in Derivatives segment. Even though the knowledge
to the investors in the Derivative segment is not adequate, they tend to take decisions with the
help of the brokers or through their friends and were trying to invest in this market. He also
argued majority the investors want to invest in short - term funds instead of long-term funds that
prefer wealth maximization instruments followed by steady growth instruments. Empirical study
also shows that market risk and credit risk are the two major risks perceived by the investors, and
for minimizing that risk they take the help of news paper and financial experts. Derivatives acts as
a major tool for reducing the risk involved in investing in stock markets for getting the best results
out of it. The investors should be aware of the various hedging and speculation strategies, which
can be used for reducing their risk. Awareness about the various uses of derivatives can help
investors to reduce risk and increase profits. Though the stock market is subjected to high risk, by
using derivatives the loss can be minimized to an extent.

Nicole Branger and Beate Breuer (2007) showed that investors can benefit from including
derivatives into their portfolios. For retail investors, however, a direct investment in derivatives is
often too complicated. They argued if the investor can trade only in the stock and money market
account, the exposure of his portfolio to volatility risk will be zero, and the relation between the
exposure to stock diffusion risk and jump risk will be fixed. They proved through documentation
both theoretically and empirically that investors can increase their utility significantly by trading
plain vanilla options. And also told that in a complete market and with continuous trading, it does
not matter which derivatives an investor uses to realize his optimal asset allocation. But with
incomplete markets, and in particular, discrete trading, on the other hand, the choice of
derivatives may actually matter a lot. This problem particularly sever for retail investor, who are
13
hindered from implementing their optimal payoff profile by too high minimum investment
amounts, high transaction costs or margin requirements, short - selling restrictions and may be
also lack of knowledge.

Philipp Schmitz and Martin Weber (2007) exposed that the trading behavior is also influenced
if the underlying reaches some exceptional prices. The probability to buy calls is positively
related to the holding of the underlying in the portfolio, meaning that investors tend to leverage
their stock positions, while the relation between put purchase s and portfolio holdings of the
underlying is negative. They also showed higher option market trading activity is positively
correlated with past returns and volatility, and negatively correlated with book to – market ratios.
In addition they report that investors open and close long and short call positions if past week's
return is positive and write puts as well as close bought and written put positions if the past
returns are negative.

Nath, Golka C. and Lingareddy, Tulsi (2008) , he emphasised that trading in commodity are
futures contributed to an increase in inflation as result showed that during the time period of
future trading the spot price of selected commodities and their volatilities had posted remarkable
increase.

B.Das, Ms. S.Mohanty and N.Chandra Shil (2008) studied the behavior of the investors in the
selection of investment vehicles .Retail investors face a lot of problem in the stock market.
Empirically they found and concluded which are valuable for both the investors and the
companies having such investment opportunities. First, different investment avenues do not
provide the same level of satisfaction. And majority of investors are from younger group.

Gupta and Naveen Jain (2008) found that majority of the investors are from younger group and
as per occupation, salaried persons are more inclined towards investment. Study also argued
education qualification is the major influenced factor in investment. Their most preferred
investment is found to be shares followed by mutual funds. Empirically they found and argued the
Indian stock market is considerably dominated by the speculating crowd, the large scale of day
trading and also fact the futures trading in individual stocks is several times the value of trading in
cash segment. They also found the largest proportions of the investors are worried about too much
volatility of the market. For trader and speculators, price volatility is an opportunity to make
quick profits. In the study, high proportions of investors have a very favorable opinion about the
capital market regulation
14
Prasanna P. K. (2008) empirically fond that foreign investors invested more in companies with a
higher volume of shares owned by general public. Foreign investors choose the companies where
family shareholding of promoters is not essential. The study concluded that corporate
performance is the major influencing factor for investment decision for any investor. As far as
financial performance is concerned the share return and earnings per share are significant factors
influencing investment decision. The study concluded that it is required to understand when FII
withdraw their funds and when they pump in more money.

Deleep Kumar P M and Deyanandan M N (2009) analyzed the opinion of retail investors on
the major market reforms as well as their investment performance. The study revealed
introduction of derivatives trading and internet trading are found useful by only a marginal group
of investors. The empirical results of the study concluded that even though SEBI claims itself to
be the champion of investor protection, it has not been successful in instilling a sense of
confidence in the minds of majority of investors.

Brajesh, Kumar and Pandy, Ajay (2009) Observed that commodity futures market in India
provide higher hedging effectiveness in agricultural commodities as compared to non agricultural
commodities and price risk management role of Indian commodity futures market has also
increased with increased activity in market.

Singh and Jha (2009) conducted a study on awareness & acceptability of mutual funds and found
that consumers basically prefer mutual fund due to return potential, liquidity and safety and they
were not totally aware about the systematic investment plan. The invertors’ will also consider
various factors before investing in mutual fund

Henrik and Stephan (2009) stated that the cross-sectional heterogeneity is the key measure of
investment behavior into genetic and environmental influences. They found that up to 45 percent
of the variation in stock market participation, asset allocation, and portfolio risk choices are
explained by a genetic component

G. Ramakrishna Reddy and Ch. Krishnudu (2009) summarized that a majority of the investors
are quite unaware of corporate investment avenues like equity, mutual funds, debt securities and
deposits. They are highly aware of traditional investment avenues like real estate, bullion, bank
deposits, life insurance schemes and small saving schemes. Study argued the primary motive of
15
investment among the small and individual investors is to earn a regular income either in form of
interest or dividend on the investment made. The other motives like capital gains, tax benefits,
and speculative profits are stated to be the secondary motives of investment. From empirical
research they argued to motivate the people to invest their savings in the stock market to be
achieved only if the regulatory authorities succeed in providing a manipulation free stock market.

K. Logeshwari and V. Ramadevi (2009) advocated that a commodities market provides a

platform for the investors as well as hedgers to protect their economic interests as well as increase
their investible wealth. Commodity prices are generally less volatile than the stocks. Therefore
it’s relatively safer to trade in commodities. But the volume being traded in commodities is much
less than the stock market. This is because of the two reasons that the investors are less aware
about the commodities market and their risk perception

Nidhi Walia and Ravi Kiran (2009) studied that to satisfy the needs of investors‟ mutual funds
are designing more lucrative and innovative tools considering the appetite for risk taking of
individual investors. A successful investor is one who strives to achieve not less than rate of
return consistent with risk assumed. They also argued as per observation by survey responses of
the individual investor’s fact is clear that overall among other investment avenues capital market
instruments are at the priority of investors but level of preference varies with different category/
level of income, and an association exists between income status of investors and their preference
for capital market instrument with return as objective
.
Vinay Mishra and Harshita Bhatnagar (2009) documented that Derivatives are considered to
be extremely versatile financial instruments, as they help to manage risks, lower funding costs,
enhance yields and diversify portfolios. The contributions made by derivatives have 4been so
great that they have been credited with having „changed the face of finance‟ in the world.
Derivatives markets are an integral part of capital markets in developed as well as in emerging
market economies. These instruments assist business growth by disseminating effective price
signals concerning exchange rates, indices and reference rates or other assets, thereby, rendering
both cash and derivatives markets more efficient.

Ashutosh Vashishtha and Satish Kumar (2010) studied encompasses scope an analysis of
historical roots of derivative market of India. The emergence of derivatives market is an ingenious
feat of financial engineering that provides an effective and less costly solution to the problem of
risk that is embedded in the price unpredictability of the underlying asset. In India, since its

16
inception derivatives market has exhibited exponential growth both in terms of volume and
number of traded contracts. They argued that NSE and BSE has added more products in their
derivatives segment but still it is far less than the depth and variety of products prevailing across
many developed capital markets.

Kaur ,Gurbandini and Rao, D.N. (2010), The commodity spot and future prices had closely
tracked each other in selected agri commodities and no significant volatility has been found in the
prices of future and spot contracts of those agricultural commodities.

Daniel Dorn (2010) concluded market for OTC derivatives have grown rapidly during the last
decade in many Asian and European countries. Investors often face a choice between dozens of
OTC options that differ only slightly in their attributes. He argued that professional advice can
help uninformed investor better navigate the menu of choices, unless issuers raise complexity or
offer advisors incentives to share in industry profit.

David Nicolaus (2010) studied that retail derivatives allow retail investors to pursue sophisticated
trading, investment strategies and hedging financial instruments. Retail investors‟ motivation for
improving the after tax return of their household portfolio represents a major driver of the
derivatives choice of the products and that provide only little equity exposure for the investor.
The derivatives reveal the divergent belief of retail investors about the future price level of the
underlying as these can be tailored to specific demand of the investor. He argued the potential role
of search costs and financial advice on the portfolio decisions of retail investors, the flexibility of
retail derivatives and low issuance costs are likely to emphasize the existing frictions in financial
retail markets such as an increase of strategies and heuristics used by retail investors to cope with
the complex decision situation or an inadequate disclosure of conflicts of interest in financial
retail markets
.
Gaurav Kabra, Prashant Mishra and Manoj Dash (2010) studied key factors influencing
investment behaviour and ways these factors impacts investment risk tolerance and decision
making process among men and women and those different age groups. They said that not all
investments will be profitable, as investor will not always make the correct investment decisions
over the period of years. Through evidence they proved that security as the most important
criterion; there is no significant difference of security, opinion, hedging in all age group. But there
is significant difference of awareness, benefits and duration in all age group. From the empirical
results they concluded the modern investor is a mature and adequately groomed person.
17
Rajiv Gupta (2010) argued in Capital Market 2009-10 IPO-QIP Report there have been several
noticeable trends over the past five years. First, the size of offerings by Indian issuers has been
growing and there are more and larger size global offerings reflecting the maturing and increasing
depth of the Indian capital markets. Second, India has become a destination and region in its own
right for 13 raising capital -previously companies could not raise more than a few hundred
million, but now have capital issues like Reliance Power, in excess of Rs. 13,200 crore ($ 3
billion). While the ADR/GDR markets remain attractive, fewer companies are using that route as
Indian markets have become strong and have the appetite for large transactions. Third, Indian
capital markets now attract companies across sectors, rather than in any single sector.

R R Rajamohan (2010) analyzed the role of the financial knowledge is important in decision
making in information intensive assets like stocks and other risky securities. Hence, reading habit,
as a proxy for financial knowledge. Younger people have greater labor flexibility than older
people; if the returns on their investments turn out to be low, they could work more or retire later.
Hence age an important factor to be considered in household portfolio analysis.

Sheng- Hung Chen and Chun-Hung Tsai (2010) wanted to identifying key factors influencing
individual investor’s decision to make portfolio choices is of importance to understand their
heterogeneous investment behavior .Through conjoint analysis examine how individual investors
derive their preferences for financial assets .Study stated female investors tend to be more detail
oriented; elder is more likely to have low level of risk tolerance; the level of education is thought
to impact on a person’s ability to accept risk ;increasing income level of individual investor is
associated with increased levels of risk tolerance . At last they argued single investors are more
risk tolerance than married investors.

Shyan -Rong Chou, Gow-Liang Huang and Hui-Lin Hsu (2010) expressed that faced with the
series of financial events leading to the current turmoil, unpleasant investor experience has
become common and personal experiences and reports of such are demonstrated in risk and
attitudes to risk. The paper showed that investors are able to choose an investment with potential
risk and returns to suit their own preferences. Products of lower potential profit are tolerated when
the risk associated with those products is similarly low. In their study they found that attitude to
risk is very similar for both the genders. The study shows most stock trading is transacted by
individual rather than institutional investors, therefore the capital gains and losses from stock
price fluctuations are felt first -hand by individual investors.
18
Yu-Jane Liu, Ming-Chun Wang and Longkai Zhao (2010) found options are important
investment financial instruments as their flexibility makes financial market complete.
Accordingly, options are complicated for those who do not educate themselves on the subject.
Study found a trader who is more professional, sophisticated, and experienced is less susceptible
to isolate his decision - making sets and simplify complicated investment strategies to form his
portfolios. The study revealed that traders in option markets don’t trade call/put contracts to such
a great degree. In general, most investors prefer to trade front month or near –the -money. Trading
in a futures market for option traders, this suggests that almost half of the investors are trading in
both options and futures market.

Gopi krishna Suvanam & Amit Trivedi (2011) studied derivative trading is essential tool for
the health of markets as they enhance price discovery and Supplement liquidity. In a span of a
year and a half after that index options, stock options and lastly stock futures were introduced,
derivatives volumes have grown to multiples of cash market volumes and have been a mode of
speculation and hedging for market participants, not possible otherwise through cash markets.
The investor invests for a certain period, the issuer of the product constantly uses derivatives
segment to hedge his positions to create the desired payoff for its clients.

Dr. Anurag Agnihotri and Dr. Anand Sharma (2011) in “ Study of convergence of Spot and
Future Price in Commodity Market (with Reference to Zeera, Channa, Zink and Natural Gas for
2005-2010)” investigated the commodity spot prices have converged with future market with a
view to measure this convergence. And to find out arbitrage opportunity in MCX, and NCDEX,
the correlation, regression, and standard deviation is used. The result indicate that correlation
coefficients themselves are not capable of detecting convergence and that the regression- linear
tests is more powerful detecting any convergence between the future and spot prices of Zeera,
Zink, Channa, and Natural gas

Dharmbeer and Mr. Barinder Singh (2011) Indian Commodity Market: Growth and Prospects
”summarizes theoretical and empirical research on the growth and prospects of emerging
commodity markets and the resulting implication on policy and regulation. They found from the
previous studies that derivatives markets have supported the hedging role of emerging derivatives
markets. All commodities are globally traded and the global demand-supply situation is widely
known and available to anyone who reaches out for it. The commodity markets are nowhere as

19
volatile as stock futures. Since commodity exchanges promote price transparency, he refuses to
buy the story that commodity exchange fuel inflation

M. Sathish, K. J. Naveen and V. Jeevanantham(2011) Studied in the options available to

investors are different and the factors motivating the investors to invest are governed by their
socio -economic. They argued that instead of investing directly, the investors particularly, small
investors may go for indirect investment because they may not be in a position to undertake
fundamental and technical analysis before they decide about their investment options. Their
empirical study showed that majority of the investors of mutual funds is also belongs to equities
who give the first preference to that avenue which gives good return. From the study, concluded
that lack of knowledge as the primary reason for not investing in investment vehicle.

Malcolm Baker, Jeffery Wargler, Y.Yuan (2011) presented the first paper to study the
international time series of the cross section of stock returns. They examined the effect of local
and global component of investor sentiment for six major stock markets into one global and six
local market indices for Canada, France, Germany, Japan, the United Kingdom and the United
States. A validation test is conducted of Siamese Twins and results reveal that relative sentiments
are correlated with the relative prices. When sentiments are high, future return is low because it‟
s difficult to arbitrage and value stocks.
.
S. Gupta, P. Chawla and S. Harkant (2011) stated financial markets are constantly becoming
more efficient providing more promising solutions to the investors. Study also proved that
occupation of the investor is not affected in investment decision. The most preferred investment
avenue is insurance with least equity market. The study also argued that return on investment and
safety are the most preferred attributes for the investment decision instead of liquidity.

S. Saravanakumar, S. Gunasekaran and R. Aarthy (2011) showed the upswing g in capital

market allows the investors to harvest handsome return in their investments, but day -trader in
stock market hard to take advantage in bullish and bearish market conditions by holding long or
short positions. Now the derivative instruments offer them to hedge against the adverse conditions
in the stock market. They argued that secondary market is the most preferred than primary
market and cash market is the most preferred market than derivatives market because of high risk
when derivatives market is preferred than cash market for higher return

20
Mark fenton, Emma Soane, Nigel Nicolson and Paul Williame (2011) document a quantitative
investigation to find difference between high and low performing traders and studied the role of
intuition in the decision making process. The emotional regulation strategies adopted by experts
reveals that high performing traders are qualitatively different from low performing traders as
former are inclined to cope up with negative feelings and formulate effective strategies to regulate
their emotions

Natividad Blasco, Pilar Corredor, Sandra Ferreruela (2012) conducted a study to explore
herding behavior to identify relationship between rational and emotional components and test
whether past return indirectly drive hearding behavior. Bikhchandani model was used to measure
hearding intensity in both buyer initiated and seller initiated market and the resulted that the
hearding intensity depends upon past returns and sentiments and confirm the presence of both
rational and emotional factors

Lalit Mohan Kathuria & Kanika Singhania (2012) concluded that private sector banking
employees were investing a larger portion of their savings into safe and risk-free investment
avenues, like employee provident fund, public provident fund and life insurance policy and only
forty percent of the respondents had high level of awareness regarding various investment
avenues.

D. Harikanth & B. Pragathi (2012) indicated that there is a significant role of income and
occupation in investment avenue selection by the male and female investors. Geographical
horizon of the investors, risks bearing capacity, educational level, age, gender and risk tolerance
capacity etc, also impacts their selection.

Sarish and Ajay Jain (2012) concluded that for the purpose of investment Or saving, the
investor are having options to invest money in mutual funds And other financial instruments like
equity shares, debentures, bonds, warrant, bank deposits. A common investor, who invests their
savings into the different assets, is not very much aware about the mutual funds.

Sanjay Kanti Das (2012) summarized that the bank deposits remain the most popular instrument
of investment followed by insurance and small saving scheme to get benefit of safety and security
of their life and investment. It was found that there is a need for increasing the financial literacy
among the middle class households

21
Dr. V. Ramanujam and K. Chitradevi (2012), in their study of Impact of Socio-Economic
profile on Investment pattern of salaried and business people observed that occupation, annual
income, annual savings and frequency of making investment were not correlated. It was also
observed that there is no significant difference in the investment pattern of the Government /
Public / Private Class of salaried invest ors as well as business, retail and service class investors.
However income level influences investment decisions.

Meenakshi Malhotra (2012) in his research paper “Commodities Derivatives Market in India:
The Road Traveled and Challenges Ahead” examine that the commodity price very critical for the
existence and growth of any industry and for the economy as a whole. Our government has
brought about sweeping reforms in the commodities markets so that industry can efficiently
manage the price risk they are faced with. They found the commodity price will continue to
behave unpredictably. Risk management through commodity derivatives will give stability to the
economic activities of the country.

k. Logasakthi and Dr. S. Asokkumar (2012) in his study titled “A Study on Investors’
Awareness of Commodity Market with reference to KIFS Securities Private Limited at Salem”
investigated the made to find out the investors knowledge towards commodity market. The study
reveals that commodity market is a market stage in Salem. They found the investment avenues of
individual investors depend mainly on annual income and risk taking capacity.

Senthil D (2012) investigated the investor’s behaviour in terms of goals, preferences, factors
influencing while selecting the schemes, service expectations etc,. The study found that the
investor’s main goal is wealth appreciation and suggests that the mutual fund companies should
control the charges to be paid by the retail investors and bring the expense to a reasonable level.

lliam T.Lin, Shin chuan Tsai, Pei Yau Long(2013)examined the relationship between the
hoarding of four investor groups namely individuals, foreign institutions, proprietary dealers ,
investment trust and the subsequent trading noise in the Taiwan Stock Exchange and suggested
that institutional herding is rational and information based but individual herding is not. Trading
noise is highest at the market opening and increasingly lowers in the middle of the day and
increases at market closing and becomes reverse J shaped during crises period. Herding of foreign
institutions reduces trading noise during both crises and non crises period while individual
herding results in high trading noise and domestic institution trading noise increases during non
crisis period
22
Dr. (MRS.) Kamlesh Gakhar and Ms. Meetu (2013) in “Derivatives Market in India:
Evaluation, Trading Mechanism and Future Prospects” investigated the Indian derivative market
has achieved tremendous growth over the years, and also has a long history of trading in various
derivatives products. The derivatives market has seen ups and downs. The new and innovative
derivative products have emerged over the time to meet the various needs of the different types of
investors. Though, the derivative market is burgeoning with its divergent products, yet there are
many issues. Solution of these issues will definitely lead to boost the investors ‘confidence in the
Indian derivative market and bring an overall development in all the segments of this market.

Mr. Sharma KRS (2013) A Study of Commodity Futures in India- perception towards
commodities futures trading in India with special reference to commodity futures exchanges. The
growth of commodity derivative market in the country has been impressive. With institutional
players prevented from participating in the commodity futures market, the retail investors, as a
group, have emerged as major players in the said market. They also add that commodity futures
are positively correlated with inflation, unexpected inflation and change in expected inflation.

Harvindaer pal Kaur and Dr. Bimal Anjum (2013) in his study titled “Commodity Derivatives
Market in India “examined that the India is among the apex producers of a number of
commodities and has a long history of trading in commodity derivatives. Commodity market has
occupied imperative position in Indian economy since the establishment of Forward Market
Commission in April 2003. There are 5 national and 21 regional commodity exchanges
recognized and regulated by this commission. They found commodity futures reform two vital
functions of the economy i. e. price discovery and management. Futures markets provide liquidity
and facilities to hedge against future price risk. It helps buyers and sellers of agricultural products
to quickly manage their trade at a fair price. Commodity trading also offers a chance for financial
leverage to hedgers, Speculators and other traders.

Dr. Sunitha Ravi (2013) in his research paper Price Discovery and Volatility Spillover in Indian
Commodity Futures Markets Using Selected Commodities “investigated the results of the
research study indicate that the future market of the commodities is more efficient as compared to
spot market. The future market also helps spot market in the process of Price Discovery. They
found the derivative instruments are available for the underlying commodities significantly
influence the volatility.

23
Puneet Bhushan & Yajulu Medury (2013) concluded that women are more conservative and
takes less risk and significant gender differences occur in investment preferences for health
insurance, fixed deposits and market investments among employees.

V.R.Palanivelu & K.Chandrakumar (2013) highlights that certain factors of salaried

employees like education level, awareness about the current financial system, age of investors etc.
make significant impact while deciding the investment avenues.

Dr. B.S.Hundal, Dr. Saurabh Grover and Jasleen Kaur Bhatia (2013), in their study on Herd
behavior and gold investment by retail investors observed that investors are of varied personality
types and have behavioural biases which impact the investment decision process. Factors such as
income tax, time value of money, future prospects and profitability influence the retail investor’s
decision making process and gold is the most sought after asset due to its high liquidity,
conventional value and cultural value features.

Prabha K.Sathish Kumar (2013) after almost two years that commodity trading is finding favor
with Indian investors and is been seen as a separate asset class with good growth opportunities.
For diversification of portfolio beyond shares, fixed deposits and mutual funds, commodity
trading offers a good option for long - term investors and arbitrageurs and speculators. And, now,
with daily global volumes in commodity trading touching three times that of equities, trading in
commodities cannot be ignored by Indian investors.
Online commodity exchanges need to revamp certain laws governing futures in commodities to
make the markets more attractive. The national multi-com modify exchanges have united
proposed to the government that in view of the growth of the commodities market, foreign
institutional investors, too, should be given the go - ahead to invest in commodity futures in
India. Commodity trading in India is poise d for a big take - off in India on the back of factors like
global economic recovery and increasing demand from China for commodities.

V.Rathnamani (2013) concluded that many investors are preferred to invest In mutual fund in
order to have high return at low level of risk, safety liquidity .It can be said that the Mutual Fund
as an investment vehicle is capturing The attention of various segments of the society , like
academicians, industrialists, financial intermediaries, investors and regulators for varied Reasons
and deserves an in depth study .In this paper an attempt is made mainly to study the investment
mode preferred by the investors in Mathura And to check the preference given to investment in
mutual funds amidst Availability of other traditional investment avenues.
24
Nikola Tarashev, Kostas Tsatsaroni s, Dimitrios Karampato (2013) This special feature
compares data that can be extracted from option and cash markets in order to derive time series of
risk aversion indicators. An encouraging feature of the estimation results is that these indicators
co-move closely across market segments. Furthermore, we find evidence that financial market
dynamics tend to change systematically with the level of investors‟ effective risk aversion. In
particular, heightened risk aversion is associated with lower returns and higher volatility,
especially for equity markets, and weaker co- movement of asset classes. Our findings thus have a
bearing on the interpretation of signals sent by financial markets. Incorporating changes in risk
attitudes in such an interpretation adds information relevant for understanding the functioning of
financial markets

Lilyana Mikova, Johan Olofsson (2013) we believe our analysis shows that investors in
segment one clearly prefer simpler securities over more complex ones, all else equal, while
investors in segment two only take into consideration return. We believe this could be the basis
for a more extensive survey that sheds additional light on investor preferences and perceptions
about complexity. Furthermore, our paper demonstrates that the Discrete Choice Experiment
methodology can be successfully applied to a number of fields outside the realm of marketing

Kumar, Brajesh and Pandy, Ajay (2013) investigated the short run and long run market
efficiency of Indian commodity futures market. They had tested four agricultural and even non -
agricultural commodities for market efficiency and unbiasedness. The result confirmed the long
run efficiency of commodity futures prices and inefficiency of futures prices in short run prices.
He found many factors like lack of participation of trading members, low market depth and thin
volume with Government’s interference in Commodity markets etc., as major evils for inefficient
price risk management

Sagar Suresh Dhole (2014) in his research paper “Commodity Futures Market in India: The
Legal Aspect and its Rationale” investigated the antiquity of commodity futures market in India
epoch back to the ancient times citied in Kautialya’s ‘Arthasastra’, and have been commodity
heard in Indian markets for centuries, seems to be coined in 320 BC, referred in Forward
Contracts (Regulation) Act, 1952. They found the markets have made enormous advancement in
terms of technology, transparency and the trading activity. Interestingly, this has happened only
after the Government protection was removed from a number of commodities, and market forces
were allowed to play their role. Rational Government policies and the plinth of effective laws
25
have benefited in many ways like Credit accessibility, improved product quality, predictable
pricing, Import- export competitiveness, and price risk management and price discovery.

Supriya (2014) reviewed derivative as a tool for managing risk which comes out of uncertainty
and makes it difficult for businesses to estimate their future production cost and revenues. The
NSE figures reveal that in equity derivative almost 90% of activity is due to stock futures and
index futures, whereas trading in options is still limited to few stocks, partly because they are
settled in cash and not the underlying stock. Further she found NSE has programmes to inform
and educate brokers, dealers, traders and market personnel.

Kareash Gupta, (2014) “Views of the Market Participants on Trading, Regulations in the
Derivatives Market”, Indian Institute of Capital Markets Conference Paper, The dynamic growth
of the Derivatives market, particularly Futures & Options and the perceived risks to the financial
sector, continue to stimulate debate on the proper regulation of these instruments. Even though
this market was initially fuelled by various expert teams survey, regulatory framework,
recommendations byelaws and rules there is still a debate on the existing regulations such as why
is regulation needed? When and where regulation needed? What are reasonable and attainable
goals of these regulations? Therefore this article critically examines the views of market
participants on the existing regulatory issues in trading Derivative securities in Indian capital
market conditions.

Dr. S. Rajamohan, G. Hudson Arul Vethamanikam and C. Vijaykumar (2014) in his study
titled “Commodity Futures Market in India” examined that the commodity trading has a long
history and it has been modernized in the market. The commodities trading are occupied an
important place in the economy it depends on the international trade A structural system has been
created for commodity trades. It is creating awareness and the more opportunity to the investors
and public. They found the market volatility is based on these commodities performance.
However the commodity market has provided huge support to the Indian economy.

Dr. G. Selvalakshmi and Dr. A. Arumugam (2014) Impact of Price Level Change in Indian
Commodity Market” asserts that since its reintroduction, the commodity derivatives market is
thriving and the current trend shows the strong growth potential of the market, although, the
actual growth trajectory will depend upon the attitude of the policy makers and the efficiency of
the regulatory mechanism

26
Bansl, Varsha Dadhich and Naveed Ahmad (2014) in his study titled “Indian Commodity
Market-A Performance Review investigated the Indian commodity markets have recently thrown
open a new avenue for retail investor and traders to participate commodity derivatives. The study
discusses the evolution and performance of the market, its present status and the future prospect.
They found the different commodities (agriculture, metals, bullion, energy and other) show a
positive trend in their volume and value of trade. The percentage share of agriculture commodity
in total commodity market has been declined in the year 2011-11 but bullion shows an increasing
trend along with metal and energy. It all shows that the market has strong growth potential.

MahendraAhuja, Narender L. and (2014), concluded that Indian commodity market has made
enormous progress since 2003 with increased number of modern commodity exchanges,
transparency and trading activity. The volume and value of commodity trade has shown
unpredicted mark. This had happened due to the role played by market forces and the active
encouragement of Government by changing the policy concerning commodity derivative. He
suggested the promotion of barrier free trading in the future market and freedom of market forces
to determine the price.

Patrick McAllister, John R. Mansfield 2014. “Investment property portfolio management

and financial derivatives” His study on Derivatives has been an expanding and controversial
feature of the financial markets since the late 1980s.They are used by a wide range of
manufacturers and investors to manage risk. This paper analyses the role and potential of
financial derivatives investment property portfolio management. The limitations and problems of
direct investment in commercial property are briefly discussed and the main principles and types
of derivatives are analysed and explained. The potential of financial derivatives to mitigate many
of the problems associated with direct property investment is examined.

N. Kumar and D. Balaji, (2015) in “An Empirical Investigation on the Investors‟ Perception
towards Commodities Futures Trading In south India with Special Reference India” argues that
since 2003, the growth of the commodity derivative market in the country has been impressive.
With institutional players prevented from participating in the commodity futures market, the retail
investors, as a group, have emerged as major players in the said market.

Rakesh, K. Asha (2015), suggested the participation of banks in the commodity futures market
for effective commodity price risk management as financing by banks could provide efficient
hedge against price risk. They pointed out that significant risk returns features and diversification
27
potential has made commodities popular as an asset class. Indian futures markets have improved
pretty well in recent years and would result in fundamental changes in the existing isolated local
markets particularly in case of agricultural commodities.

Rahul B. A.Oberoi (2015) in “Keys to commodity trading” dwells on the nine common myths
about investing in the commodity market. He admits that the commodity market has its share of
speculators but sees nothing wrong with it. Along with hedgers and arbitrageurs, speculators help
in the price discovery exercise He argues that it is not difficult to understand the commodity
market. All commodities are globally traded and the global demand - supply situation is widely
known and available to anyone who reaches out for it. The commodity markets are nowhere as
volatile as stock futures. If investors overtrade and exploit the margin to the hilt, then they cannot
blame the commodity market for the unfavourable outcome, if any. Since commodity exchanges
Promote price transparency, he refuses to buy the story that commodity exchanges fuel inflation.
On the other hand, by allowing wider participation, these exchanges discourage cartelization on
the part of local traders and associations. Even small investors can take up commodity trading. It
is also wrong to assume that buyers of commodity derivatives should take delivery as well.
Delivery is mandatory only in specific commodities and that too only if one keeps the position
open after the delivery notice period. There is compulsory delivery in commodities such as Chana
and gold. Nor is it true that prices are easy to manipulate in the commodity markets. This is
because most commodities that are traded are produced and consumed across the global.

Manesh K.L. Kiranth Kumar (2016) in his study identified and stated that a perception lies
with majority of investors that future trading will lead to profits and it is not used for other
purpose like hedging. The nature of the derivatives instruments are to reduce the risk involved in
trading but in real time investors are not taking derivatives trading for reducing their risk
involved in trading and profit making is considered to be an important factor for the them. On
the other hand side a number of reforms and initiatives are still needed in promoting India as a
major futures trading hub in tune to the status of being amongst the top five producers of most of
the commodities.

3.2. CONCLUSION
In the current scenario, investing in stock markets is a major challenge ever for professionals.
Derivatives acts as a major tool for reducing the risk involved in investing in stock markets for
getting the best results out of it. The investors should be aware of the various hedging and
speculation strategies, which can be used for reducing their risk. Finally the research conclude
28
with investment behavior of investors and their attitude towards commodities market investments,

29
because it is having more both risk and return factors, if the company advice the make the
respondents to know the long benefits, they will also turn their eyes on commodities market.
Particularly the Bullions have more value and being traded in huge volume per day. If the
respondents invest in these products, they can gain more profit, but the company has to trade and
give service effectively to satisfy the investor’s investment needs. Long term investments are
highly suggestible than short term investment, because long term investments give a stable
return for long time also it will make the investors to increase their knowledge in commodities
market products and its trend and directions.

30