Abstract
The collapse of Lehman Brothers that led to global financial crisis had not left the Indian market too. During crisis many investors who determine their strategies in the underlying market based on the traditional indices and future prices movements were clueless about the plunge in the markets. The two benchmark stock indices, the Nifty and Sensex have ceased to reflect the 'true' performance of Indian stock markets today (Business Line, [2]). Thus investors tracking the market based on the popular indices alone as the market indicator will not suffice their hunger for building profitable trading strategies. Thus in the current scenario, to gauge any uncertainty in the market and to capture the underlining market movements in a systematic manner, the market volatility, liquidity, futures price should be closely monitored. Hence, this paper aimed at looking into the complex relationship between India VIX (Volatility Index), Index Futures, Open Interest (Liquidity) and NIFTY (Market) by applying Structural Equation Model (SEM) by which the impact of VIX, Nifty Futures and Open Interest on Nifty prices and their inter-relationships were studied to better understand the underlying market performance.
Highlights
Investors in general are driven by greed and fear on any rational assessment of when to buy and sell in the stock market
Even as the majority of stocks are in deep declines or languishing near their bear market lows, the two indices are still putting up a façade of relative resilience (Business Line, [2]). investors tracking the market based on the popular indices alone as the market indicator will not suffice their hunger for building profitable trading strategies
This paper aimed at looking into the various market indicators such as India VIX (Volatility Index), Index Futures, Open Interest (Liquidity), NIFTY (Market) and their complex relationship by applying Structural Equation Model (SEM)
Summary
Investors in general are driven by greed and fear on any rational assessment of when to buy and sell in the stock market. Many investors, who had held their stocks through all the uncertainty up until watched markets plunge and dumped their stocks in a panic, after Lehman Brothers collapsed in 2008 globally (Bennett, [1]). This global effect has not left the Indian stock market too. The Nifty and Sensex have ceased to reflect the ‘true’ performance of Indian stock markets today Even as the majority of stocks are in deep declines or languishing near their bear market lows, the two indices are still putting up a façade of relative resilience (Business Line, [2]). investors tracking the market based on the popular indices alone as the market indicator will not suffice their hunger for building profitable trading strategies. How to gauge any uncertainty in the market or which drives the market in general is muddy among the investing environment
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