Dynamic Linkages and Temporal Relationships Between Spot and Future Index Prices: Empirical Evidence from India Using Non-linear GARCH–BEKK

IF 2.6 Q2 ECONOMICS
Khalid Ul Islam, Umer Mushtaq Lone, Younis Ahmed Gulam, Suhail Ahmad Bhat
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引用次数: 0

Abstract

This study empirically examines price discovery and volatility spillover between the spot and futures markets for India using both daily and intraday data of Nifty50 and its associated futures index. Within the Johansen cointegration framework, the study for the first time used the recursive cointegration method for examining the dynamics of the long-run relationship between the equity spot and futures markets. To analyze the volatility spillovers between the two markets the study employs BEKK–GARCH model. This model ensures the positive definiteness of the conditional covariance matrix and estimates the same with less number of parameters as compared to the traditional multivariate GARCH models including the VECH model. The empirical results show that there is a stable long-run relationship between the two markets. The Granger causality findings support the notion that the futures market plays a dominant role in causal relationships. There is also a two-way volatility spillover between the two markets. However, it is relatively seen that the futures market has strong transmission effects which are carried over to the spot market. This is intuitive because the futures market is more sensitive to new information than its counterpart due to differences in cost and liquidity. The results based on the latest data, offer a new perspective on the lead–lag relationship between India’s stock market futures prices and spot prices. These findings can benefit stock market stakeholders by protecting themselves from uncertainty and developing futures contracts that will increase the efficiency of the Indian equity market.

Abstract Image

Abstract Image

现货和期货指数价格之间的动态联系和时间关系:使用非线性 GARCH-BEKK 的印度经验证据
本研究利用Nifty50及其相关期货指数的每日和盘中数据,实证检验了印度现货和期货市场之间的价格发现和波动性溢出。在约翰森协整框架内,本研究首次使用递归协整方法来检验股票现货和期货市场之间长期关系的动态。为了分析两个市场之间的波动溢出效应,本研究采用BEKK-GARCH模型。与包括VECH模型在内的传统多元GARCH模型相比,该模型保证了条件协方差矩阵的正确定性,并以较少的参数估计相同。实证结果表明,两个市场之间存在稳定的长期关系。格兰杰因果关系的发现支持了期货市场在因果关系中起主导作用的观点。两个市场之间还存在双向波动溢出效应。但相对而言,期货市场具有较强的传导效应,并将传导效应传导至现货市场。这是直观的,因为由于成本和流动性的差异,期货市场对新信息更为敏感。基于最新数据的研究结果,为印度股市期货价格和现货价格之间的领先滞后关系提供了一个新的视角。这些发现可以通过保护自己免受不确定性和开发将提高印度股票市场效率的期货合约,使股票市场利益相关者受益。
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来源期刊
CiteScore
3.00
自引率
0.00%
发文量
34
期刊介绍: The current remarkable growth in the Asia-Pacific financial markets is certain to continue. These markets are expected to play a further important role in the world capital markets for investment and risk management. In accordance with this development, Asia-Pacific Financial Markets (formerly Financial Engineering and the Japanese Markets), the official journal of the Japanese Association of Financial Econometrics and Engineering (JAFEE), is expected to provide an international forum for researchers and practitioners in academia, industry, and government, who engage in empirical and/or theoretical research into the financial markets. We invite submission of quality papers on all aspects of finance and financial engineering. Here we interpret the term ''financial engineering'' broadly enough to cover such topics as financial time series, portfolio analysis, global asset allocation, trading strategy for investment, optimization methods, macro monetary economic analysis and pricing models for various financial assets including derivatives We stress that purely theoretical papers, as well as empirical studies that use Asia-Pacific market data, are welcome. Officially cited as: Asia-Pac Financ Markets
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