Price Discovery in Spot and Futures Market: Evidence from Selected Sensex Companies
Keywords:
Causality, Co-integration, Lead-lag, Price DiscoveryAbstract
Present study is conducted on selected 10 sensex companies and BSE-Sensex by taking daily spot and futures price data from Jan 1, 2011 to Dec 31, 2015. The aim of the study is to find out lead-lag relationship between spot and futures market and price discovery role of these markets in India. Econometric techniques like Unit root test, Johansen Co-integration test, VECM and Granger Causality test have been used for this study. The study found that there is an existence of co-integration between spot and futures market suggesting the presence of long run equilibrium between the two markets. The results show that spot market is playing the price discovery role because causality runs from spot to futures in case of all securities except one. Also, spot market is leading the futures market in India implying that it may contain useful information for the investor.
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