DHARANA - Bhavan's International Journal of Business

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Johansen’s Cointegration technique followed by the Vector Error Correction Model (VECM) was employed to examine the lead-lag relationship between NSE spot and futures markets of selected eight IT sector stocks of India. The empirical analysis was conducted for the daily data series from 20th April, 2005 to 15th September, 2008. The analysis reveals the bidirectional relationship between spot and futures markets in case of five selected IT stocks. This is followed by spot leads to futures and futures leads to spot markets in case of two and one selected IT stocks in India respectively. The present study suggests that depending on the relative proportions of informed to uninformed (noise) traders migrating from the spot market to the futures market, the lead-lag relationship between futures and spot market of selected IT sector stocks may differ.

Keywords

Stock Futures, Spot Market, Lead-Lag Relationship, Cointegration, Vector Error Correction Model, Informational Efficiency.
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