Does the Straits times index have an impact on the spot nifty? An econometric analysis of the interlinkages between the sgx nifty futures, straits times index and the spot nifty.

This study examines the interlinkages between the Straits Times Index, Spot Nifty and SGX Nifty. The Straits times index and the SGX Nifty futures trade on the same exchange and since the global macro-variablesthat impact early trade are common across all exchanges we infer that these effects should have a similar impact on all stocks and derivatives traded on the exchange. We test this assumption using the Granger Causality and Johansen Cointegration test. The log of the returns is taken for the purposes of calculation and the data is tested for stationarity using the Phillips Perron test. For the purpose of lag selection we assess the data on 5 different criteria-Likelihood ratio, Final Prediction error, Akaike Information criterion, Schwarz information criterion and the Hannan Quinn criterion. The relationship between SGX futures and Nifty spot is tested using the Granger causality test. This test is run in order to confirm the presence of a relationship between the SGX futures and Spot Nifty. The methodology suggested by Johansen and Juselius is adopted for identifying the presence of co-integrating vectors between the SGX Nifty, Nifty spot and Straits times index. The Granger causality test confirms the presence of causality between SGX futures and Spot Nifty. The Johansen cointegration test clearly specifies the presence of co-integrating vectors. This research has substantial implications for investors, fund managers and researchers.