Efficiency of Indian Equity Futures Market—An Empirical Analysis with reference to National Stock Exchange

2020 ◽  
pp. 097215092092046
Author(s):  
Partha Sarathi Roy ◽  
Tanupa Chakraborty
Keyword(s):  
Stock Exchange ◽  
Spot Market ◽  
Futures Market ◽  
Primary Objective ◽  
Impulse Response Functions ◽  
Market Capitalization ◽  
Long Run ◽  
Short Run ◽  
Underlying Stocks ◽  
Long Run Equilibrium

At National Stock Exchange (NSE), the largest by market capitalization and the most liquid stocks, which form the majority of free float market capitalization of the exchange, have traded futures contracts. The equity stock futures segment in India has recorded very high growth in trading volume and turnover for more than one decade where majority trade happens on NSE. The primary objective of this study is to investigate the dynamic linkages between equity stock futures and their underlying spot markets. The article examines market efficiency and the causal relationship between single-stock futures and underlying stocks traded at NSE, by employing Johansen cointegration test, a test for autoregressive (AR) order of basis, vector error correction model (VECM) and impulse response functions. The result shows the existence of long-run equilibrium relationship between equity stock futures and their underlying stocks. The spot market is found to play a lead role in correction of any short-run disequilibrium towards long-run equilibrium, for the majority of stocks. Both spot and future markets contribute in price discovery and neither of the markets display considerably higher information efficiency compared to the other. In contrast, the study also reveals possibilities of arbitrage opportunity between the equity stock futures market and the underlying spot market in absence of transaction costs possibly due to faster correction of short-run disequilibrium by spot prices.

scholarly journals The Lead and Lag Relationship Between Spot Market and Futures Market: Empirical Evidence From Vietnam

2020 ◽  
Vol 11 (5) ◽  
pp. 192
Author(s):  
Nguyen Anh Phong ◽  
Ho Thi Hong Minh ◽  
Ngo Phu Thanh ◽  
Tran Nguyen Thanh Son
Keyword(s):  
Stock Exchange ◽  
Impulse Response Function ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Future Price ◽  
Causality Test ◽  
Long Run ◽  
Integration Test ◽  
Short Run

This study investigates the lead and lag relationship between Spot market and Futures market in Vietnam. In this study, we employ the data collected from stock-related database in Ho Chi Minh Stock Exchange and Ha Noi Stock Exchange. The data of daily closing prices of VN30 index (the spot price) and VN30F1M (the 1-month future price of VN30 index) are then collected. We apply various methods, namely: Granger causality test, Johansen co-integration test, Vector Error Correlation Model, Impulse Response Function and Variance Decomposition. The result of this paper is consistent with previous research. It finds strong evidence that Spot market leads Futures market in Vietnam stock market in both the short-run and long-run. Therefore, Spot market play a discovery role in which investors can obtain useful information from Spot market to improve their portfolio profit and minimize the risk. Besides, regulators can rely on this finding to come up with better policies and further develop Futures market.

Do ‘Shariah’ indices surpass conventional indices? A study on Dhaka Stock Exchange

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md. Bokhtiar Hasan Aarif ◽  
Muhammad Rafiqul Islam Rafiq ◽  
Abu N.M. Wahid
Keyword(s):  
Stock Exchange ◽  
Forecast Error ◽  
Error Variance ◽  
Impulse Response Functions ◽  
Causality Test ◽  
Content Type ◽  
Long Run ◽  
Significant Difference ◽  
Short Run ◽  
Two Indices

Purpose This paper aims to examine whether the Sharīʿah indices outperform the conventional indices as evident from Dhaka Stock Exchange (DSE). To achieve the objective, the study, first, assesses the risk adjusted returns of the Sharīʿah and conventional indices and compares the same between the two indices. Second, it examines the short-run and long-run associations between the two indices. Design/methodology/approach The DSEX Sharīʿah index and DSE broad index of the DSE are used as representatives of the Sharīʿah and conventional indices, respectively. The study uses monthly data for the period 2014–2018 and applies a number of techniques such as risk adjusted returns, Johansen’s cointegration test, vector error correction model, Granger causality test, forecast error variance decomposition and impulse response functions techniques. Findings The study reveals that albeit there is no significant difference in simple mean between the two indices, the Sharīʿah index outperforms its conventional counterpart based on the risk adjusted returns. The two indices are associated only in the long-run, while no causal relationship is spotted between them. The overall results show that the Sharīʿah index has dominance over the conventional index in Bangladesh. Research limitations/implications The study could use more pairs of indices, including additional variables such as financial crisis and macroeconomic variables. Practical implications The study has important implications to investors, especially the religious Muslims and ethical ones, who are suggested to invest their funds in the Sharīʿah index without sacrificing returns, rather be monetarily more benefited. Moreover, the other investors can generate diversification benefits by adding both Sharīʿah and conventional indices in their portfolios in the short-run. Originality/value Unlike previous studies, this study endeavors to use a comprehensive methodology to conduct its analysis. Moreover, this is supposedly the first ever effort to conduct such a study in the context of Bangladesh.

Price Discovery and Market Efficiency of Commodities Futures Market in India- A Cointegration and Causality Analysis

2015 ◽  
Vol 5 (2) ◽  
Author(s):  
Shaik Masood ◽  
T. Satyanarayana Chary
Keyword(s):  
Market Efficiency ◽  
Price Discovery ◽  
Spot Market ◽  
Futures Market ◽  
Commodity Futures ◽  
Causality Analysis ◽  
Long Run ◽  
Integration Test ◽  
Short Run

The paper studies the Indian commodity futures market in order to determine the price discovery, long run market efficiency and short run dynamics in futures market using by time series analysis tools. To test the market efficiency and long run equilibrium, tools like Engle and Granger co-integration test (1987) and Johansen co-integration test (1988) have been applied. The Granger Causality (1969) test is used test the market efficiency to infer cause and affect relationship between spot and futures market in India. To examine efficiency of commodity futures and spot market the MCXs1 four spot and futures commodity indices data are used. The paper observes that the role of commodity futures is very significant in price discovery, and improving efficiency of the market.

scholarly journals Empirical Evidence of the Causative Association between Spot, Futures and Options Market: An ARDL Model Approach

2020 ◽  
Vol 11 (1) ◽  
pp. 202
Author(s):  
Vaishali Jain ◽  
Rahul Dhaigude ◽  
Rajiv Divekar
Keyword(s):  
Causal Relationship ◽  
Price Discovery ◽  
Stock Exchange ◽  
Spot Market ◽  
Options Markets ◽  
Ardl Model ◽  
Distributed Lag ◽  
Long Run ◽  
Short Run ◽  
Futures And Options

Purpose: The purpose of this paper is to explore and provide evidence about the nature of short run causal relationship as well as the speed with which prices adjust towards achieving the long run equilibrium between cash and FAO markets in India as represented by National Stock Exchange. The study uses individual stocks for studying the underlying relationship.Design/Methodology: The paper makes use of the auto regressive distributed lag model to study the causal relationship between spot, futures and options markets. The study makes use of the 15-minute interval trades data for the purpose of analysis.Findings: The ARDL model shows a long run association between spot, futures & options (both call & put) prices but we do not have sufficient statistical evidence to conclude the short run causal association between the variable except for call and put options.Practical Implications: The results indicate that derivative markets are not leading the spot market but spot market contributes towards price discovery in the FAO markets. Potential investors can take their positions and design their portfolio in the cash and FAO segments using the insights provided by this piece of work.Originality/Value: This paper is an original piece of work towards evidencing the causative association between spot, futures and options markets using individual securities. Matters pertaining to price discovery process in Indian financial markets are issues of interest for financial thinkers, traders, investors and financial analysts.

Crude Oil Volatility Transmission Across Food Commodity Markets: A Multivariate BEKK-GARCH Approach

2020 ◽  
pp. 097265272092762
Author(s):  
M. Thenmozhi ◽  
Shipra Maurya
Keyword(s):  
Crude Oil ◽  
Futures Markets ◽  
Spot Market ◽  
Futures Market ◽  
Spot Price ◽  
Volatility Spillover ◽  
Oil Futures ◽  
Long Run ◽  
Short Run ◽  
Crude Oil Futures

This study examines the time-varying price risk transmission in the nexus between crude oil and agricultural commodity prices in the context of non-grain-based biofuel producing country. Analysis of the short- and long-run dynamics of volatility in both spot and futures markets of maize, soybean and wheat and crude oil prices using the multivariate BEKK-GARCH model, indicate volatility spillover from wheat futures to crude oil futures in the short run and from crude oil futures to futures markets of maize, soybean and wheat in the long run. The spot market linkage of selected commodities is weaker compared to futures market, wherein maize spot volatility transmits to crude oil spot market in the longer period and no spillover between crude oil-food spot market is observed in the short run. The hedge ratios indicate that a dynamic hedging strategy is crucial for efficient risk management and the portfolio weights in futures market are more than the spot market. The results reveal that cross-market volatility spillover is more evident in the futures market, while own past conditional volatility is more significant in spot price discovery and risk transmission is evident among food commodities futures markets. JEL Codes: G13, G14, Q11, Q18, Q02

scholarly journals A Short Note on Discrimination and Favoritism in the Labor Market

2017 ◽  
Vol 17 (1) ◽  
Author(s):  
Nicolas Salamanca ◽  
Jan Feld
Keyword(s):  
Labor Market ◽  
Wage Differentials ◽  
Short Note ◽  
Market Forces ◽  
Long Run ◽  
Short Run ◽  
Relative Preferences ◽  
Long Run Equilibrium

AbstractWe extend Becker’s model of discrimination by allowing firms to have discriminatory and favoring preferences simultaneously. We draw the two-preference parallel for the marginal firm, illustrate the implications for wage differentials, and consider the implied long-run equilibrium. In the short-run, wage differentials depend on relative preferences. However, in the long-run, market forces drive out discriminatory but not favoring firms.

scholarly journals Investigating Gold Investment as an Inflationary Hedge

2018 ◽  
Vol 7 (1) ◽  
pp. 30-41 ◽  
Author(s):  
Narinder Pal Singh ◽  
Navneet Joshi
Keyword(s):  
Consumer Price Index ◽  
Wald Test ◽  
Indian Culture ◽  
Vector Error Correction ◽  
Fund Managers ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Portfolio Managers ◽  
Long Run Equilibrium

Gold and Indian culture have been sharing an age-old association. India is one of the top two consumers of gold. Gold is the most popular investment avenue because of its ability to provide liquidity. The average monthly price however has grown by 1,588 percent over the whole period from 1979 to 2017 (June). In this article, we intend to investigate gold as an investment to hedge against inflation. The sample period to study the relationship between gold and inflation is 2011–2017 (March). To analyze long-run equilibrium between gold and inflation (consumer price index [CPI]), Johansen’s cointegration approach has been used. The short- and long-run causality between gold and inflation has been studied using vector error correction model (VECM) and Wald test. The results of cointegration indicate that gold and CPI series are cointegrated and bear long-run equilibrium. Both VECM and Wald test results indicate that there is only long-run causality between CPI and gold prices. However, in short run these variables do not show any causality. Thus, we infer that gold investment can be used as hedge against Inflation. The findings of this research have got direct implications for retail investors, portfolio managers, treasury and fund managers, government, and commercial traders.

scholarly journals The long-Run and Short-Run Analysis between Stock Market Index and Macroeconomic Variables in Jordan: Bounds Tests Approach

2019 ◽  
Vol 12 (4) ◽  
pp. 50
Author(s):  
Raed Walid Al-Smadi ◽  
Muthana Mohammad Omoush
Keyword(s):  
Stock Market ◽  
Time Series Data ◽  
Stock Exchange ◽  
Series Data ◽  
Stock Market Index ◽  
Macroeconomic Variables ◽  
Market Index ◽  
Long Run ◽  
Equilibrium Relationship ◽  
Short Run

This paper investigates the long-run and short-run relationship between stock market index and the macroeconomic variables in Jordan. Annual time series data for the 1978–2017 periods and the ARDL bounding test are used. The results identify long-run equilibrium relationship between stock market index and the macroeconomic variables in Jordan. Jordanian policy makers have to pay more attention to the current regulation in the Amman Stock Exchange(ASE) and manage it well, thus ultimately helping financial development.

scholarly journals The dynamic effect of exchange-rate volatility on Turkish exports: Parsimonious error-correction model approach

2015 ◽  
Vol 62 (4) ◽  
pp. 429-451 ◽  
Author(s):  
Erdal Demirhan ◽  
Banu Demirhan
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Exchange Rate Volatility ◽  
Dynamic Effect ◽  
Error Correction Model ◽  
Impulse Response Functions ◽  
Correction Model ◽  
Long Run ◽  
Export Volume ◽  
Short Run

This paper aims to investigate the effect of exchange-rate stability on real export volume in Turkey, using monthly data for the period February 2001 to January 2010. The Johansen multivariate cointegration method and the parsimonious error-correction model are applied to determine long-run and short-run relationships between real export volume and its determinants. In this study, the conditional variance of the GARCH (1, 1) model is taken as a proxy for exchange-rate stability, and generalized impulse-response functions and variance-decomposition analyses are applied to analyze the dynamic effects of variables on real export volume. The empirical findings suggest that exchangerate stability has a significant positive effect on real export volume, both in the short and the long run.

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