Price Discovery Through Indian Equity Futures Market. (With Abstract)

This paper investigates whether the Indian equity futures market is an efficient price discovery vehicle. The hypothesis has been investigated through near-month Nifty index futures and 24 stock futures. The price series is found to be non-stationary in spot as well as futures markets at levels; but by applying the Augmented Dicky-Fuller test and Philips Perron test, the first difference log returns are found to be stationary. In order to evaluate price discovery efficiency of Indian equity futures market, Johansen's Cointegration, Vector Error Correction Model (VECM) and Generalized Impulse Response Analysis are applied. Bilateral causality has been observed between futures and cash market, and the evidences further suggest that futures contracts, which are characterized with good trading volume, are useful price discovery vehicles.