Al-Barkaat Journal of Finance & Management
Year : 2009, Volume : 1, Issue : 2
First page : ( 23) Last page : ( 34)
Print ISSN : 0974-7281.

An Empirical Study on the Relationship between Nifty Futures Index Prices and Nifty Spot Prices at National Stock Exchange

Shakeel Moonis, Senior Research Associate

Evalueserve.com Private Limited.

Email for correspondence: moonis.shakeel@evalueserve.com.

Abstract

The objective of the present study is to investigate the lead-lag relationship between nifty futures and nifty spot index, so as to find out the market which is able to play a leading role in price discovery. This finding is important for all the market participants alike. Daily closing prices for the period June 12, 2000 through December 27, 2007 have been used for the study. Cointegration technique is used to analyze the long run relationship between nifty futures index and spot index and the error correction model to examine the short-term adjustment process. Finally, Granger causality test was conducted to establish the causality between the two markets. The empirical findings suggest that it is the spot market that leads the futures market, although the exact time by which spot leads futures is not known as we have taken daily closing prices for our study.

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Keywords

Spot Markets, Futures Markets, Unit Root, Cointegration, Error Correction Model, Granger Causality.

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