Cointegration between Nifty 50 Spot and Future Indices: An Empirical Analysis Applying Vector Error Correction Model
Main Article Content
Abstract
This paper aims to investigate the cointegration of the spot market and future indices (NIFTY, NIKKEI, S&P 500 AND Singapore FTSE) of selected developed and developing nations from January 2011 to December, 2021. The Johansen cointegration test, Granger Causality Test, and Vector Error Correction Model (VECM) are all used to gauge the degree of cointegration. The study's empirical findings support the hypothesis that there is cointegration between the spot market and future market indices of selected global markets. Comparative Granger tests for causality using the error correction model and results of error correction tests reveal interdependencies. The fact that the S&P 500 spot market index and future market index have a bi-directional causality shows that how interdependent these stock indices are. But, in case of Singapore FTSE, there is uni-causality from SGX future to SGX Spot indices. And in rest of indices (NIFTY and NIKKEI), there is no causality between spot and future stock indices. The study's conclusions show that investors may create diverse portfolio strategies to manage risk.
Article Details
References
Ahmed, K., Rehman, M. U., & Ozturk, I. (2017). What drives carbon dioxide emissions in the long-run? Evidence from selected South Asian countries. Renewable and Sustainable Energy Reviews, 70, 1142–1153
Al Nasser, O. M., &Hajilee, M. (2016). Integration of emerging stock markets with global stock markets. Research in International Business and Finance, 36, 1-12.
Aggarwal, S., & Raja, A. (2018). Stock market interlinkages among the BRIC economies. International Journal of Ethics and Systems.International Journal of Ethics and Systems, 35(1), 59-74.
Anoruo, E., Ramchander, S., &Thiewes, H. (2003). Return dynamics across the Asian equity markets. Managerial Finance.
Arshanapalli, B., &Doukas, J. (1993). International stock market linkages: Evidence from the pre-and post-October 1987 period. Journal of Banking & Finance, 17(1), 193-208.
Arshanapalli, B., & Kulkarni, M. S. (2001). Interrelationship between Indian and US Stock Markets. Journal of Management Research (09725814), 1(3).
Asgharian, H., Hess, W., & Liu, L. (2013). A spatial analysis of international stock market linkages. Journal of Banking & Finance, 37(12), 4738-4754.
Ben-Zion, U., Choi, J.J., Hauser, S., 1996. The price linkages between country funds and national stock markets: evidence from cointegration and causality tests of Germany, Japan and UK funds. J. Business Finan. Account. 23, 1005–1017.
Chatrath, A., & Liang, Y. (1998). REITs and inflation: a long-run perspective. Journal of Real Estate Research, 16(3), 311-326.
Chen, L. H., Finney, M., & Lai, K. S. (2005). A threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices. Economics letters, 89(2), 233-239.
Das, D., & Manoharan, K. (2019). Emerging stock market co-movements in South Asia: wavelet approach. International Journal of Managerial Finance, 15(2), 236-256.
Dhanaraj, Sowmya, and Arun Kumar Gopalaswamy. "Dynamic interdependence between US and Asian markets: an empirical study." Journal of Financial Economic Policy 5.2 (2013): 220-237.
Dickey, D A and W A Fuller (1979), "Testing for Unit Roots in Seasonal Time Series", Journal of American Statistical Association, Vol. 79, No. 386, pp 355-367.
Engle, R. F., & Granger, C. W. J. (1987). Co-Integration and error correction: tepresentation, estimation, and testing. Econometrica 55, 251–276
Granger, C W J (1969), "Investigating Causal Relations by Econometric Methods and Cross-Spectral Methods", Econometrica, Vol. 37, pp 424-438.
Guesmi, K., & Nguyen, D. K. (2014). Time-varying regional integration of stock markets in Southeast Europe. Applied economics, 46(11), 1279-1290.
Gulzar, S., Mujtaba Kayani, G., Xiaofen, H., Ayub, U., & Rafique, A. (2019). Financial cointegration and spillover effect of global financial crisis: A study of emerging Asian financial markets. Economic research-Ekonomskaistraživanja, 32(1), 187-218.
Hall, R. J., & Henry, P. F. (1992). Assessing effects of pesticides on amphibians and reptiles status and needs. Herpetological Journal, 2(3), 65-71.
Johansen, S and Juselius, K (1990), "Maximum Likelihood Estimation and Inference on Cointegration with Application to the Demand for Money", Oxford Bulletin of Economics and Statistics, Vol. 52, No. 2, pp 169-210.
Johansen, S (1991), "Estimation and Hypothesis Testing of Cointegrating Vectors in Gaussian Vector Autoregressive Models", Econometrica, Vol. 59, pp 1551-1580.
Karim, Z.A., Zaidi, A.S. & Karim, B.A. 2011. Firm-level equity return respond to domestic and international monetary policy shocks? A panel data study of Malaysia. Jurnal Ekonomi Malaysia 45: 21–31.
Kawamoto, K., &Hamori, S. (2011). Market efficiency among futures with different maturities: Evidence from the crude oil futures market. Journal of Futures Markets, 31(5), 487-501.
Kizys, R., &Pierdzioch, C. (2011). The financial crisis and the stock markets of the CEE countries. Finance a Uver, 61(2), 153.
Lehecka, G. V. (2014). Have food and financial markets integrated? Applied Economics, 46(18), 2087-2095.
Lien, D., &Tse, Y. K. (1999). Fractional cointegration and futures hedging. Journal of Futures Markets: Futures, Options, and Other Derivative Products, 19(4), 457-474.
López-Robles, J. R., Otegi-Olaso, J. R., Gómez, I. P., &Cobo, M. J. (2019). 30 years of intelligence models in management and business: A bibliometric review. International journal of information management, 48, 22-38.
Maghyereh, A., & Al?Kandari, A. (2007). Oil prices and stock markets in GCC countries: new evidence from nonlinear cointegration analysis. Managerial Finance, 33(7), 449-460.
Masih, A. M., & Masih, R. (1997). On the temporal causal relationship between energy consumption, real income, and prices: some new evidence from Asian-energy dependent NICs based on a multivariate cointegration/vector error-correction approach. Journal of policy modeling, 19(4), 417-440.
Mishra, B., & Debasish, S. S. (2008). Indian Stock Market. Excel Books India.
Misra, A. K., &Mahakud, J. (2009). Emerging trends in financial markets integration: the Indian experience. International Journal of Emerging Markets.
Nogueira Junior, R. P. (2010). Inflation environment and lower exchange rate pass-through in Brazil: is there a relationship?. RevistaBrasileira de Economia, 64, 49-56.
Pan, W. F. (2018). Does the stock market really cause unemployment? A cross-country analysis. The North American Journal of Economics and Finance, 44, 34-43.
Phylaktis, K., Ravazzolo, F.,(2002). Measuring financial and economic integration with equity prices in emerging markets. J. Int. Money Finance 21, 879–903.
Quan, J. (1992): “Two-step Testing Procedure for Price Discovery Role of Futures Prices,” The Journal of Futures Markets, 12:139-149.
Roll, R. (1989). Industrial structure and the comparative behavior of international stock market indices. The Journal of Finance, 47(1), 3-41.
Samadder, S., &Bhunia, A. (2018). Integration between Indian stock market and developed stock markets. Journal of Commerce and Accounting Research, 7(1), 13.
Silvapulle, P., &Moosa, I. A. (1999). The relationship between spot and futures prices: evidence from the crude oil market. Journal of Futures Markets: Futures, Options, and Other Derivative Products, 19(2), 175-193.
Veerappa, B. S. (2016). Cointegration of Asian Stock Markets: Empirical Evidence from India. International Journal of Financial Management, 6(2), 25.
Westgaard, S., Estenstad, M., Seim, M., & Frydenberg, S. (2011). Co-integration of ICE gas oil and crude oil futures. Energy Economics, 33(2), 311-320.