Abstract
The study is aimed at examining the price discovery (lead-lag) relationship between spot & future market for four currencies i.e., USD, EURO, GBP, JPY in context of INR. The estimation of relationship is executed in three steps. First, to unfold the time series properties & the order of integration Unit Root Test (Augmented Dickey-Fuller) is applied to check the stationarity of the data. Second, to explore the nature (long-run or short-run) of relationship cointegration tests (Engel and Granger’s residual-based approach and Johansen’s cointegration test) are applied. Third, Vector Error Correction Model (VECM) is carried out to determine the leading market. The study covered the sample period from November 1st, 2013 to March 29th, 2016.The findings elucidate that spot return exhibits adjustment tendencies & the futures market impounds information faster than the spot market. It implies that future market leads the spot market for each currency.
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