Abstract
The lead-lag relationship between spot and futures markets has been investigated extensively in the financial economics literature. This paper investigates the price discovery function in spot and S&PCNX Nifty futures market. The analysis has been done with reference to near month, next month and far month index futures respectively. The results of VECM-SURE model show that there exists bi-directional Granger causality between spot and futures market, but spot market plays a more important role in price discovery. The results of impulse response function and information share indicate that most of the price discovery happens in index spot market. The evidence of EGARCH model shows that the volatility spillover between spot and futures markets is bi-directional. However, the information flow from spot to futures is stronger and spot market dominates the futures market in terms of return and volatility.
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