THE ROLE OF INFORMATION ASYMMETRY AND TRANSPARENCY IN SHAPING INVESTORS' ENGAGEMENT IN DERIVATIVES TRADING

Abstract

The derivatives market in India has experienced significant growth since the introduction of exchange-traded derivatives by SEBI in 2000. However, information asymmetry and market transparency continue to influence investor participation, impacting market efficiency and risk management. This study explores the interplay between information asymmetry, transparency, and investor engagement in derivatives trading. The key research questions focus on how information asymmetry affects investor behaviour and the role of transparency in mitigating trading risks. A quantitative, descriptive, and analytical research design was employed, using structured surveys to collect data from 384 investors. The study applied regression analysis, ANOVA, and sentiment analysis to evaluate the impact of transparency on trading behaviour. The findings reveal that market transparency (β = 0.38, p < 0.001) and financial literacy (β = 0.57, p < 0.001) significantly enhance investor confidence, whereas information asymmetry (β= -0.42, p < 0.001) negatively impacts engagement. Descriptive analysis indicates that trading frequency increases by 67% in highly transparent markets compared to opaque markets. The results highlight the need for policy reforms to enhance real-time disclosures, financial literacy programs, and AI-driven transparency measures. Future research should focus on longitudinal analyses and cross-market comparisons to further assess the effectiveness of regulatory intervention