Lead Lag Relationship between Nifty Index Futures and Spot Market

Lead Lag Relationship between Nifty Index Futures and Spot Market

Journal of Accounting, Finance and Economics

Vol. 6. No. 2., September 2016, Pages: 78 – 89

Lead Lag Relationship between Nifty Index Futures and Spot Market

Divya Gakhar

Derivatives were introduced in Indian securities market as it offers various benefits like price discovery, efficiency and transparency. This paper analyses lead lag relationship between Nifty Index futures and Nifty Index spot prices. By taking daily price data from 4-06-2000 to 05-02-2015 of Nifty Index futures and Nifty index cash market price, we have tried to understand whether Nifty futures prices leads the spot market price or vice versa. By using cointegration test, granger causality test, Vector error correction model and diagnostic testing results have been analysed. VECM results indicate that there is long run causality which exists running from near month nifty futures to nifty index and short run relationship also exists between two markets.