The recent financial crisis renewed concerns about a possible destabilizing impact
of derivatives trading. Despite a very active research, the question whether or not
derivatives tend to destabilize financial markets has not yet been answered to
satisfaction. This contribution aims to revise the robustness of recent empirical
findings and to remedy some methodological shortcomings of earlier studies.
Acknowledging their practical relevance, we focus on futures and examine the
volatility impact of DAX futures trading. Our results confirm a volatility-reducing
impact of DAX futures trading, whereas the observed deterioration of the
fundamental price building process proved to be statistically insignificant