Price discovery in indian stock market – an empirical study with the s&p cnx nifty index

This paper examines the relationship between the futures market and spot market of S&P CNX Nifty during the sample period January 2003 through September 2010 and quantifies the price discovery function of futures prices in relation to spot prices of the sample market. The Cointegration tests and Vector Error Correction Models (VECM) employed in the study proved certain long-run equilibrium relationship between the selected spot market and the futures market. From the results of the study it was also found that the futures price series had a greater speed of adjustment to the previous deviations and hence the price discovery was achieved first in the spot market.