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Returns And Volatility Relationship Between Futures And Spot Market In India
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Book Synopsis RETURNS AND VOLATILITY RELATIONSHIP BETWEEN FUTURES AND SPOT MARKET IN INDIA by : Mohd Atif
Download or read book RETURNS AND VOLATILITY RELATIONSHIP BETWEEN FUTURES AND SPOT MARKET IN INDIA written by Mohd Atif and published by Mohd Atif. This book was released on 2023-01-22 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the important reasons for the development of derivatives worldwide is economic risk associated with trading in financial assets and commodities. In the last few decades, financial markets have undergone a tremendous change. On one hand, financial markets have been deregulated and on the other hand, financial innovation coupled with advancement in computing technology has made trading mechanism easier and automated. This has led to increased volatility in the financial markets. Fluctuations in economic variables such as interest rates have further increased risk. Management and measurement of risk have undergone a huge change. To mitigate the risk associated with the rapid fluctuations in the financial markets the demand for hedging instruments have increased. One of the most important such risk mitigation instruments is a futures contract.
Book Synopsis Futures Market - Determinants of Indian Futures Market by : Babu Jose
Download or read book Futures Market - Determinants of Indian Futures Market written by Babu Jose and published by LAP Lambert Academic Publishing. This book was released on 2013 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: Futures Market movement always depends on the fluctuation of the spot market. Elements of the futures market such as Open Interest, Trade volume, Volatility of futures return and Turn over are having direct link with futures return. Underlying Market return is the major influencing factor of the futures market, but the uncertain events of the futures market can be explained by observing the different relation ships of variables in the futures market.Market Depth, Market Volatility and market Trends are having causal relationship with futures return. Market responses and reflections are explained by the study with the help of econometric models like VAR Granger Causality/Block Exogeniety test, Impulse Response Function and Variance Decomposition.Indian stock and derivative markets are so speculative and volatile, the prediction of the movement is very difficult. Daily return series of S&P CNX Nifty and its underlying index from 2000 to 2010 are taken for the analysis. The whole study period is divided in to five stages as per the market movement and structural break of the data series. The empirical results of the study reveals the determinants of the futures market in India.
Book Synopsis Relationship Between Spot and Futures Prices by : Rajni Kant Rajhans
Download or read book Relationship Between Spot and Futures Prices written by Rajni Kant Rajhans and published by . This book was released on 2015 with total page 8 pages. Available in PDF, EPUB and Kindle. Book excerpt: In developed financial markets, there is no dearth of literature on relationship between spot and future market. India, in the year 2000 introduced derivative market to provide risk mitigation mechanism to market participants. The present study concluded that there is no short-run relationship between Nifty 50 Index and Nifty 50 Futures Index while there is a long-run relationship between the two. The combined analysis of outputs of Granger Causality and Johansen co-integration provided a more rational justification and can be interpreted that possibly at a time of high volatile market when price discovery is not more on rational basis but rather on other spill-over, a short-run lead-lag relationship could not be observed between spot stock index and futures index. However, in long-run the volatility dies away and market returns back to fundamental factors and hence, there is evidence of long-run relationship between spot stock index and futures index.
Book Synopsis Interdependence Between Spot and Futures Equity Markets by : Vijay Kumar
Download or read book Interdependence Between Spot and Futures Equity Markets written by Vijay Kumar and published by LAP Lambert Academic Publishing. This book was released on 2012-06 with total page 92 pages. Available in PDF, EPUB and Kindle. Book excerpt: Indian capital markets have been witnessed a major transformation and structural changes over the past one decade as a result of ongoing financial sector reforms initiated by the Government. This study investigated the lead lag relationship between the spot and futures equity market in India, both in terms of return and volatility, examines the lead lag relationship between the spot and futures markets for asymmetric information and also incorporate price co-integration relationship between spot and futures markets in the lead lag relationship analysis. We employed data in the study consists of intraday price histories from JAN 2001 to November 2005 for the nearby contract of nifty index futures and Index.We find a strong contemporaneous relationship between futures and cash prices, along with some significant evidence that futures markets leads spot market during times of high volatility. Consequently, reactions in futures markets are faster, and movements in futures prices lead spot price fluctuations.
Book Synopsis Determinants of Futures Market in India by : Babu Jose
Download or read book Determinants of Futures Market in India written by Babu Jose and published by . This book was released on 2013 with total page 11 pages. Available in PDF, EPUB and Kindle. Book excerpt: In India, spot market return, number of contract, turnover and volatility of the futures market are having short run relationship with futures market return. On the basis of the empirical analysis it is clearly found that spot market is the key factor which predicts the movement of futures market and the trader can depend upon volatility and trading volume to take any decision on futures market trading. In precise, spot market return, volatility of the futures market, turnover and number of contract are the determinants of futures market in India. Spot market return is the major determinants of futures market, indeed variables from futures market itself like open interest and turnover of futures market can be taken in to consideration for determining the futures market return. The empirical study is made with spot return, futures return, volatility of futures return, number of contract, trading volume and open interest of S&P CNX Nifty and its underlying index Nifty-50 for the period 12th June 2000- 30th June 2011 by applying the VAR Granger Causality/Block Exogenity Test.
Book Synopsis Effect of Futures Trading on Spot Market Volatility by : Brajesh Kumar
Download or read book Effect of Futures Trading on Spot Market Volatility written by Brajesh Kumar and published by . This book was released on 2011 with total page 25 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study investigates the relationship between futures trading activity and spot market volatility for agricultural, metal, precious metals and energy commodities in Indian commodity derivatives market. This article contributes to the debate whether the futures trading in Indian commodity futures market stabilizes or destabilizes spot market. We explore this issue by modeling contemporaneous as well as dynamic relationship between spot volatility and futures trading activity including trading volume (speculative/day trading) and open interest (hedging). Following Bessembinder and Senguin (1992), we examine contemporaneous relationship through augmented GARCH model in which spot volatility is modeled as GARCH (1,1) process and trading activity is used as explanatory variable. We also decompose futures trading volume and open interest series into expected and unexpected component. The lead-lag relationship between spot price volatility and futures trading volume and open interest is investigated through VAR model. Granger causality tests, forecast error variance decompositions and impulse response function are used to understand the dynamic relationship between these variables. We found that both expected and unexpected futures trading volume affects contemporaneous spot volatility positively. However, in case of agricultural commodities only unexpected volume affects the contemporaneous spot volatility. Granger causality tests, forecast error variance decompositions and impulse response function confirm that the lagged unexpected volatility causes spot price volatility for all commodities. The effect of speculative/day trading activity measured by trading volume on spot market volatility is positive. However, hedging activity measured by open interest does not show significant effect on spot market volatility. We do not find any effect of spot volatility on futures trading activity for most of the commodities.
Book Synopsis Price Discovery and Volatility Spillover in the Agricultural Commodity Futures Market in India by : M Ajoy Kumar
Download or read book Price Discovery and Volatility Spillover in the Agricultural Commodity Futures Market in India written by M Ajoy Kumar and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2002, when the government permitted futures trading on most of the commodities and allowed setting up of national level exchanges, trading in agricultural commodities grew very fast with soy oil, soy bean, mustard seed and chana constituting the major share in 2013. The current study attempts to analyze the price behavior in terms of returns as well as volatility between the spot and futures markets for these four commodities. The study uses a combination of VECM and EGARCH models to analyze the data. The study finds existence of long-term equilibrium relationship between the futures and spot prices, with the futures leading the spot. In the short run, futures returns seem to have a stronger impact on the spot returns in most of the commodities.
Book Synopsis An Analysis of Price Volatility, Trading Volume and Market Depth of Stock Futures Market in India by : Srinivasan Kaliyaperumal
Download or read book An Analysis of Price Volatility, Trading Volume and Market Depth of Stock Futures Market in India written by Srinivasan Kaliyaperumal and published by GRIN Verlag. This book was released on 2018-03-13 with total page 144 pages. Available in PDF, EPUB and Kindle. Book excerpt: Project Report from the year 2010 in the subject Business economics - Investment and Finance, , course: Ph. D, language: English, abstract: Every modern economy is based on a sound financial system and acts as a monetary channel for productive purpose with effecting economic growth. It encourages saving habit by throwing open and plethora of instrument avenues suiting to the individuals requirements, mobilizing savings from households and other segments and allocating savings into productive usage such as trade, commerce, manufacture etc. Thus a financial system can also be understood as institutional arrangements, through which financial surpluses are mobilized from the units generating surplus income and transferring them to the others in need of them. In nutshell, financial market, financial assets, financial services and financial institutions constitute the financial system. The activities include exchange and holding of financial assets or instruments of different kinds of financial institutions, banks and other intermediaries of the market. Financial markets provide channels for allocation of savings to investment and provide variety of assets to savers in various forms in which the investors can park their funds. At the same time, financial market is one that integral part of the financial system which makes significant contribution to the countries’ economic development. It establishes a link between the demand and supply of long-term capital funds. The economic strength of a country depends squarely on the state of financial market, apart from the productive potential of the country. The efficient allocation of fund by the capital market depends on the state of capital market. All the countries therefore focus more on the functioning of the capital market. Indian financial market has faced many challenges in the process of effecting more efficient allocation and mobilization of capital. It has attained a remarkable degree of growth in the last decade and in continuing to achieve the same in current decade also. Opening up of the economy and adoption of the liberalized economic policies have driven our economy more towards the free market. Over the last few years, financial markets, more specifically the security market were experiencing a lot of structural and regulatory changes. The major constituents of financial market are money market and the capital market catering to the type of capital requirements.
Book Synopsis Understanding Volatility - the Case of the Introduction of Futures Trading in the National Stock Exchange, India by : Saurabh Kumar
Download or read book Understanding Volatility - the Case of the Introduction of Futures Trading in the National Stock Exchange, India written by Saurabh Kumar and published by . This book was released on 2002 with total page 13 pages. Available in PDF, EPUB and Kindle. Book excerpt: This project attempts to investigate the effect of the introduction of Futures trading in the National Stock Exchange, India (NSE) and get insights into the effect upon the volatility of the NSE. The underlying spot market volatility is estimated using symmetric GARCH methods. Any increase in stock market volatility that has followed the onset of futures trading has generally been taken as justifying the traditional view that the introduction of futures markets induces destabilizing speculation. This has led to calls for greater regulation to minimise any detrimental effects. An alternative view is that futures markets provide an additional route by which information can be transmitted, and, therefore, increased spot market volatility may simply be a consequence of the more frequent arrival, and more rapid processing of information. Thus, futures trading may be fully consistent with efficiently functioning markets.This paper attempts to investigate the change, if any, in the volatility observed in the Indian stock market due to the introduction of futures trading. The change in the volatility is compared not only in absolute levels of volatility but also in terms of the structure of the volatility. This is done to give insights into the way the futures market is influencing the Indian spot market's volatility.
Book Synopsis Contribution of Indian Index Futures to Price Formation in the Stock Market by : Suchismita Bose
Download or read book Contribution of Indian Index Futures to Price Formation in the Stock Market written by Suchismita Bose and published by . This book was released on 2009 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we analyse whether the Indian Stock Index Futures market plays an important role in the assimilation of information and price discovery in the stock market. Using Futures prices for the Samp;P CNX Nifty Index traded on the National Stock Exchange of India, we find that there is significant information flow from the futures to the spot market and futures prices/returns have predictive power for the spot prices. If we take account of the long run relation between the two price series we find clear bidirectional information flows or feedback between the markets. The contributions of the two markets to the price discovery process are also almost equal with the futures showing a marginal edge over the spot market, as the information flow into the stock prices from the futures is slightly higher than the price information flows to the futures market from the spot market. The futures market also readjusts faster to market-wide information and thus absorbs much of the volatility induced by flow of new information.
Book Synopsis Impact of Futures and Options on the Underlying Market Volatility by : Sibani Prasad Sarangi
Download or read book Impact of Futures and Options on the Underlying Market Volatility written by Sibani Prasad Sarangi and published by . This book was released on 2007 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a theoretical background to and empirical evidence of the impact of futures and options on the spot market volatility. This study is based on both closing and opening price returns. The sample data consist of daily opening and closing price returns of Samp;P CNX Nifty, Nifty Junior and Samp;P 500 index from January 1, 1997 to March 31, 2005. Earlier studies have used different time-series techniques like GARCH, IGARCH, ECM, OLS, etc. to access the impact of derivatives on the spot market volatility. The present study uses family of GARCH techniques to capture the time-varying nature of volatility and volatility clustering phenomenon in the data. The empirical evidence suggests that there are no significant changes in the volatility of the spot market of the Samp;P CNX Nifty Index, but the structure of the volatility has been changed to some extent. However, the study also found that the new information is assimilated into prices more rapidly than before, and there is a decline in the persistence of volatility since the inception of futures trading.
Book Synopsis A Further Investigation of the Lead-Lag Relationship in Returns and Volatility Between the Spot Market and Stock Index Futures by : Sotirios Karagiannis
Download or read book A Further Investigation of the Lead-Lag Relationship in Returns and Volatility Between the Spot Market and Stock Index Futures written by Sotirios Karagiannis and published by . This book was released on 2014 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the lead-lag relationship in daily returns and volatilities between price movements of FTSE/ASE-20 futures and the underlying FTSE/ASE-20 cash index of the Athens Stock Exchange. The results suggest that there is a bidirectional causality between spot and futures returns, rejecting the usual result of futures leading spot market. However, spot market seems to play a more important role in price discovery. Volatility spillovers across the two markets are examined by using a bivariate EGARCH(1,1) model. This model is found to capture all the volatility dynamics. The results indicate that the transmission of volatility is bidirectional. Any piece of information that is released by the cash market has an effect on futures market volatility, and vice versa. Nevertheless, the volatility spillover from spot to futures market is slightly stronger than in the reverse direction.
Book Synopsis Impact of Currency Futures on Spot Market Volatility in Indian Foreign Exchange Market by : Dr. Govind Patra
Download or read book Impact of Currency Futures on Spot Market Volatility in Indian Foreign Exchange Market written by Dr. Govind Patra and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work is an endeavor to explore the relationship of Lag between future & underlying market, ie. Spot in foreign exchange market of India. Only the USD/INR exchange rate is considered for the study for the presented work. This study is comprised of both analytical and empirical. The daily exchange rates of US Dollar and Indian Rupee (INR) were collected over some time from 30th January 2015 up to 23rd November 2020. The presented study has been worked out in four phases. First is to get (Augmented Dickey-Fuller), unit root and stationarity tests PP (i.e., Philips- Perron) & Kwiatkowski Phillips Schmidt-Shin) is being applied to check time series data stationarity. Second, to get cointegration between the futures and spot market tests (Johansen's Cointegration Test) was used. Granger Causality and Vector error correction models are used to get the lag relationship between futures and spot markets. The results depict the long-run relationship between the spot market and futures market, and the futures market is seen as leading in the empirical analysis of this paper. From the perspective of Investors, hedgers, and Policy Maker, Currency Futures has more helpful information to work further.
Book Synopsis Return Volatility Movements in Spot and Futures Markets by : Jeng-Hong Chen
Download or read book Return Volatility Movements in Spot and Futures Markets written by Jeng-Hong Chen and published by . This book was released on 2014 with total page 14 pages. Available in PDF, EPUB and Kindle. Book excerpt: After the Debt Ceiling Bill was passed on August 2, 2011, the S&P 500 index returns volatility increased significantly until the end of 2011. This research investigates the return volatility movements in S&P 500 spot index and index futures markets, the lead/lag relationship between two markets, and the effect of volatility on the trading costs using year 2011 intraday data. The analyses of intraday data show the following results during the higher volatility period (8/3/2011-12/30/2011): First, the difference of return variances between index futures and spot index is even greater than that during the lower volatility period. Second, the index futures market leads the spot index market and the interaction between both markets becomes stronger. Third, both index futures and spot index exhibit clearer U-shape intraday pattern of return volatilities. Finally, the trading costs, measured by the bid-ask spreads, are significantly larger.
Book Synopsis Return Volatility, Cross-sectional Dispersion, and Trading Activity in the Equity and Futures Markets by : Hendrik Bessembinder
Download or read book Return Volatility, Cross-sectional Dispersion, and Trading Activity in the Equity and Futures Markets written by Hendrik Bessembinder and published by . This book was released on 1993 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Linkages, Persistence, Asymmetry in the Volatility and the Effect of the Us Subprime Mortgage Financial Crisis, on the Spot and the Futures Rate's Returns in the Indian Stock Market by : Muthucattu Paul
Download or read book The Linkages, Persistence, Asymmetry in the Volatility and the Effect of the Us Subprime Mortgage Financial Crisis, on the Spot and the Futures Rate's Returns in the Indian Stock Market written by Muthucattu Paul and published by . This book was released on 2014 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effects of persistence, asymmetry, and the US Sub-prime Mortgage crisis on the volatility of the returns and also the linkages and causality between the spot and futures volatility by using various classes of the ARCH and GARCH models, and through the Granger's causality. We have used two indices: one for spot and the other for futures, for the daily data from, June 12th 2000 to September 30th 2013 from Nifty stock market of India. The descriptive statistics of the 'return data' calculated from log first differences, shows that the returns are not following the normal distributions. The magnitude of the volatility in returns of the spot and the futures market are similar, and therefore there is no evidence that the futures market volatility is higher. We have then tested for ARCH effects, and subsequently employed various models of the ARCH and GARCH conditional volatility. The ARCH effect is significant in both spot and futures market returns volatility. The GARCH (1,1) model is found to be significant, and therefore, in contrast to an ARCH model, GARCH (1,1) model implies that the returns are not autocorrelated, have 'short memory,' and depend on the constant mean only, similar in a way, to the CAPM'S expected return concept. It supports the hypothesis of the efficiency of the markets. The negative 'news' has more significant effect on volatility, corroborating the 'leverage impact' in finance on market volatility. We have also tested the volatility spillover effects from spot return variance to future return variance, through adding explanatory variables to the variance equations. We have also, after knowing the stationarity properties of the 'return series' employed the Granger causality to know the linkages between spot and futures return volatility. Both methods support the spillover effects. There is bidirectional Granger's causality between futures and spot return volatility. We also have used the dummy variable for the US Sub-prime mortgage financial crisis to know the effect on the volatility of the stock returns in Indian market and found that they are statistically significant. Indian stock market is thus integrated to the world stock markets and the news effects from outside, especially that of the US.
Book Synopsis Price Discovery and Market Efficiency Revisited by : Kushankur Dey
Download or read book Price Discovery and Market Efficiency Revisited written by Kushankur Dey and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We have taken pepper as a commodity to explore the co-integrating vectors, nature/direction of causality, and subsequently, we try to model volatility spillover in Indian pepper futures and spot markets employing Johansen"s co-integration, VECM, Granger causality and variance decomposition tests. We draw inferences from the study that unidirectional causality has been observed in case of pepper futures market. However, the adjustment of innovations or shocks in futures market is relatively faster than that of spot markets. For volatility modelling, we have employed models with their specifications, namely, EGARCH (2,2), EGARCH (3,3), MGARCH (Diagonal VECH and BEKK) for both pepper"s spot and futures return-series. Study reveals that unidirectional spillover has been identified under EGARCH (2, 2) model and results obtained through EGARCH (3,3) model are not impressive. News impact curve depicts the steeper movement on the logarithmic conditional variance of futures and spot-return series, which is due to positive shocks rather than that of negative shocks. Conditional correlation seems to be dynamic in nature and the correlation between spot and futures returns of pepper has been witnessed the temporal changes.
