The Causal Relationship between Spot and Future Prices in India: A Select Case Study of NSE

Sarita satapathy; Dr. Nirmala Chandra Kar

Volume : V, Issue : IX, September - 2015

The Causal Relationship between Spot and Future Prices in India: A Select Case Study of NSE

Sarita Satapathy, Dr. Nirmala Chandra Kar

Abstract :

This paper empirically examines the causal relationship between spot and future prices of NSE CNX Nifty and some selected stocks of Nifty (TATA Motors, ICICI Bank, INFOSYS, ACC and ONGC) using daily data covering the period from January 2010 to December 2014. The dynamic relationships including lead–lag relationships between spot and future market are investigated using Johansen–Juselius cointegration test, Vector Error Correction Model(VECM), Impulse response,Variance Decomposition and Granger causality test. The results suggest that there is a long run relationship between spot and future prices of Nifty and all the five stocks considered in the study. It is also found that there is a unidirectional causal relationship running from future prices to spot prices of Nifty, TATA Motors and ACC. Further, the study finds a bidirectional causal relationship running from spot to future prices and future to spot prices in case of ICICI Bank, INFOSYS and ONGC. JEL Classification: G1, G13, G14,