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Domestic and international information linkages between NSE Nifty spot and futures markets: an empirical study for India

Author

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  • Sanjay Sehgal

    (University of Delhi)

  • Mala Dutt

    (University of Delhi)

Abstract

This paper examines the information linkages between NSE Nifty Index spot and futures in India and Nifty futures traded on international platforms from August 2008 to March 2015. We find that, at domestic level, Nifty spot leads Nifty futures in the price discovery process. Further, NSE futures lead all the three international exchanges, namely, SGX, OSE and CME. This confirms that NSE is the dominant platform for Nifty trading, while the international exchanges act as satellites. The information path for transmission of Nifty price signals brings out geographical proximity, trading costs, trading hours, information access and currency denomination of Nifty futures contracts at individual exchanges as major factors for the lead–lag relationships. Short-term volatility spillover path is from Nifty spot to futures on NSE, and NSE leads two of the three international counterparts (SGX and OSE). No significant long-term volatility spillovers are observed domestically as also internationally, except bilateral information transmission between NSE and SGX. The dominance of NSE Nifty spot suggests that hedgers play an important role in both price discovery as well as risk hedging. These findings are relevant for policy makers, portfolio managers as well as the academic community.

Suggested Citation

  • Sanjay Sehgal & Mala Dutt, 2016. "Domestic and international information linkages between NSE Nifty spot and futures markets: an empirical study for India," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 239-258, September.
    • Handle: RePEc:spr:decisn:v:43:y:2016:i:3:d:10.1007_s40622-016-0137-1
    DOI: 10.1007/s40622-016-0137-1
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    2. Mala Dutt & Sanjay Sehgal, 2018. "Domestic and International Information Linkages between Gold Spot and Futures Markets: An Empirical Study for India," Metamorphosis: A Journal of Management Research, , vol. 17(1), pages 1-17, June.
    3. Agrawal, Tarunika & Sehgal, Sanjay & Kumar, Muneesh, 2020. "Market development and policy issues for agri-derivatives in India: a study of cotton and mentha," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 33(1), June.
    4. Kumar, S.S.S. & Sampath, Aravind, 2019. "What drives the off-shore futures market? Evidence from India and China," Finance Research Letters, Elsevier, vol. 30(C), pages 394-402.
    5. Muneesh Kumar & Tarunika Jain Agrawal & Srishti Sehgal, 2017. "Domestic and International Information Linkages for Indian Commodities Market in the Pre- and Post-CTT Periods," Metamorphosis: A Journal of Management Research, , vol. 16(2), pages 75-91, December.

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    More about this item

    Keywords

    Information linkages; Price discovery; Volatility spillover; Bivariate GARCH–BEKK model;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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