Spot and Futures Stock Market in India: Co-integration

This paper investigates the relationship between spot and futures prices for stock market in India, for the period 12^th June, 2000 to 31^st March, 2014. For this purpose S&P CNX Nifty Index Spot and S&P CNX Nifty Index Futures have been used, as it represents the major portion of the stock market in India.

Various econometric tools like Johansen's Co-integration Test, Vector Error Correction Model (VECM), and Granger Causality Test have been implied to know the relationship between spot and futures prices during the period of the study.

Empirical estimates highlight the following evidence:

Spot and Futures stock market are co-integrated

Futures market played a leading role over spot market

Both futures market and spot market are Granger Cause to each other