he effects of stock index futures trading on returns of the index component T stocks (and on stocks in general) is of concern to market participants, regulators, and academics. Harris (1989) demonstrates that following the introduction of futures trading, the volatility of the S&P 500 component stocks increases relative to the volatility of a control group of non-S&P stocks. This article reports the results of a similar study of the effects of the introduction of Major Market Index (MMI) futures trading. Volatility of the MMI component stocks does not appear to be greater since the introduction of MMI futures trading, in either absolute or relative terms, to the volatility of two control groups used in the study.
Interpretation of a failure to find discernable effects from the introduction of MMI futures trading suffers from several potentially confounding factors.' AMEX trading in MMI options began in April 1983, predating MMI futures trading by more than one year. Thus, MMI options trading could have affected the performance of the MMI stocks making anyfurther change small. Furthermore, all 20 of the MMI stocks are included in the S&P 500 and a futures contract for the S&P began trading in April 1982, predating both MMI options and futures. It must be noted also that a "critical mass" of trading may be required before any effects of stock index futures trading on the component stocks can be noticed. MMI futures and options volumes have never approached those of S&P contracts.
The S&P 500 contract dominates stock index futures trading and is studied by Harris (1989) in a manner quite similar to the research design of this study, yet the MMI brings some advantages to further analysis. With only 20 stocks in the index, selection of control groups through direct examination of various accounting attributes of the stocks is possible. Such an approach is computationally intractable using broader indexes. Harris, for example, selects his control groups using an al-I wish to thank two anonymous referees and the editor of this journal for their helpful comments and suggestions. I, of course, remain responsible for any remaining errors.
'Although not reported in this note, the effects of MMI options trading initiation are studied also by the author and are available on request. The results of the options study indicate that initiation of MMI options does not significantly affect the performance of the MMI stocks relative to the performance of the control groups.