Lead - Lag Relationship in Indian Stock Market: Empirical Evidence

Abstract

This paper studies the lead lag relationship between the spot and future market in the context of introduction of Nifty futures at the National Stock Exchange (NSE) in June 2000. Co-integration and linear regression techniques are used to determine the existence of any such relation in the two markets during 1st April 2002 and 31st March 2005. The major findings from this endeavor are that the Nifty Futures market leads the nifty index cash market, a lead - lag relation can be traced for all the years under study individually, the relationship among the Nifty index futures and cash market has differed considerably during the mentioned time period. On the basis of this analysis we can say that the two markets are now becoming more efficient and we see a much faster flow of information between the two markets. Further the study tries to portray a picture for the individual stock in the S&P CNX Nifty. This paper indicates that the two markets are highly efficient and in some cases any shock in the market is simultaneously absorbed in both the markets, suggesting an absence of any lead - lag relationship in both the markets under consideration.