Reconnoitering Price Discovery and Market Efficiency Process Among Indian HRITHIK Stocks Using VAR Causality and VECM Tests

Authors

  •   Nupur Gupta Associate Professor (Accounting & Finance Area), Jaipuria Institute of Management, Indore, Dakachaya, Indore Dewas Highway, Near Shipra Naka, Indore - 453 771 Madhya Pradesh
  •   Yash Dalal Associate, Sanat M Dalal Securities Pvt. Ltd., 1211, BSE Building, Dalal Street, Mumbai - 400 001, Maharashtra

DOI:

https://doi.org/10.17010/ijf/2022/v16i2/162434

Keywords:

Futures Market

, Price Discovery, Market Microstructure, Vector Autoregression Engel Granger Causality, Vector Error Correction Model.

JEL Classification Codes

, C12, C58, C87, G13.

Paper Submission Date

, May 15, 2021, Paper Sent Back for Revision, January 5, 2022, Paper Acceptance Date, January 30, Paper Published Online, February 15, 2022.

Abstract

The purpose of this paper was to ascertain the impact of futures prices on market efficiency and price discovery in India in HRITHIK stocks from 2017 – 2020. The paper investigated the impact of futures prices on market efficiency and price discovery in India in HRITHIK stocks from 2017 – 2020. The current study comprised the daily near-month futures and daily spot closing prices of the HRITHIK stocks from January 1, 2017 – December 31, 2020, including the COVID-19 pandemic period. The paper used the vector autoregression (VAR) Engel Granger causality test to test the short-run equilibrium between spot and futures prices and the vector error correction model (VECM) to test for long-run equilibrium. A bi-directional relationship was found among six stocks out of the seven HRITHIK stocks. This confirmed the causal relationship that futures prices have on the spot prices. The VAR Engel Granger causality test indicated that the spot market narrowly led the futures despite a bi-directional flow of information. The results from the VECM model proved that the futures market acted as the dominant market in the long - run. Usually, researchers have leveraged sector-wise stocks to provide insights into the futures market’s function in price discovery. For the first time, HRITHIK stocks were analyzed to examine the cause-and-effect relationship for individual stocks in India’s futures and spot markets. The study considered the pre-COVID 19 and the post-COVID 19 periods and investigated the impact of the pandemic on these stocks. The research used daily closing prices of HRITHIK stocks; however, intraday data could be more conclusive and accurate in revealing the dominant market.

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Author Biographies

Nupur Gupta, Associate Professor (Accounting & Finance Area), Jaipuria Institute of Management, Indore, Dakachaya, Indore Dewas Highway, Near Shipra Naka, Indore - 453 771 Madhya Pradesh

Dr. Nupur Gupta is a passionate academician and researcher with a doctorate in Business Management ( Finance area) from BIT, Mesra. Currently, she is working with NMIMS, University, Navi Mumbai as Assistant Professor in Finance.  She is an economics graduate from Delhi university and MBA (Finance) from ICFAI Business school. In a career span of 16 years, she has worked in the academia for thirteen years, including teaching at the Frankfurt School of Finance and Management, Germany (visiting professor), KJ Somaiya Institute of Management Studies and Research and, Vivekanand Education Society’s Institute of Management as core faculty. Her areas of teaching include : Corporate Finance, Wealth Management, Financial Markets & Institutions and, Fixed Income Securities. Prior to joining academia, she has worked with HDFC Bank on the retail front as a Relationship Manager for HNI clients.  She has authored more than 20 research papers, in  Scopus indexed and ABDC list of journals.

 

ORCID iD : https://orcid.org/0000-0003-1111-3572

Yash Dalal, Associate, Sanat M Dalal Securities Pvt. Ltd., 1211, BSE Building, Dalal Street, Mumbai - 400 001, Maharashtra

Yash Dalal is an MBA (Batch 2019-21) from School. of Business Management, NMIMS University , Navi Mumbai Campus.

Currently , he is working as an associate with Sanat M. Dalal Securities Pvt. Ltd.

 

ORCID iD : https://orcid.org/0000-0001-9371-4704

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Published

2022-02-14

How to Cite

Gupta, N., & Dalal, Y. (2022). Reconnoitering Price Discovery and Market Efficiency Process Among Indian HRITHIK Stocks Using VAR Causality and VECM Tests. Indian Journal of Finance, 16(2), 37–50. https://doi.org/10.17010/ijf/2022/v16i2/162434

Issue

Volume 16, Issue 2, February 2022

Section

Articles
Crossref
Scopus
Google Scholar
Europe PMC

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