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The influence of index-based derivatives on underlying assets has been a source of great discord through recent history and may never be agreed upon. Significant evidence exists that both favors and condemns the influence of index-based derivatives on the investments they track. Much recent research, time and money has been spent disputing the effect of index-based derivatives on the volatility of underlying indexes, not to mention considerable efforts expended to determine the role of index-based derivatives in major market crashes, including the Great Recession of 2008 and October 1987’s Black Monday. However, commentary on and academic assessment of the very existence of index-based derivatives and the implications of the still-growing popularity of these complex risk mitigation, arbitrage and speculation instruments are both in short supply.
Analysis And Interpretation