Lead Lag Relationship between Futures and Spot Prices in Select Nifty Companies
Published: 2017
Author(s) Name: Rajani Balakrishna Bhat, Suresh V. N. |
Author(s) Affiliation: Asst. Prof., P.G. & Research Dept. of Commerce, The Cochin College, Kochi, Kerala, India.
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Abstract
The equity derivatives market in India has undergone
remarkable changes in terms of instruments
introduced. Introduction of single stock futures,
amidst great misgivings, was solely responsible for
placing Indian exchanges in the topmost position in
the global scenario. Till 2006-07, single stock futures
were the most traded instruments in the Indian equity
derivative segment. But, post-Global Financial Crisis,
there has been a continuous drift in favour of index
options from single stock futures. There has been a
continuous decline in the share of single stock futures,
the gain being that of index options. This is considered
as a clear indication towards mature stock market.
Even though the inception of derivative trading has
significantly influenced the trading volatility in the
capital market segment, it is yet to be seen whether the
introduction of derivatives has achieved its purpose or
not. The present study is an attempt to study the impact
of volatility on the stock market after the introduction
of derivatives in Indian segment. The study takes into
account a period of thirteen years, from 9th November
2001 to 31st March 2014. A bunch of Nifty companies
which satisfy the set criteria are selected for the study.
The study reveals that there exists causality between
the futures and spot prices of these companies. These
companies are found to be co-integrated in the long
run as well as in the short run.
Keywords: Derivatives Market, Futures Prices, Index Futures, Indian Stock Market, Informational Efficiency, Market Efficiency, Price Discovery, Single Stock Futures, Spot Prices
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