Open Access Open Access  Restricted Access Subscription Access

An Empirical Investigation of Mispricing in Stock Futures at the National Stock Exchange


Affiliations
1 Associate Professor, School of Management Studies, Motilal Nehru National Institute of Technology Allahabad, Allahabad - 211 004, Uttar Pradesh, India
2 Faculty, Amity University, Sector 125, Noida - 201313, Uttar Pradesh, India
3 Student, Amity Business School, F - 3 Block, Amity University Campus, Sector 125, Noida - 201 313, Uttar Pradesh, India

   Subscribe/Renew Journal


This paper is an attempt to study the mispricing in stock futures of India. The cost of carry model was operationalized in the present study. Any deviation from the theoretical price so arrived at connotes mispricing. In-depth analysis was conducted with respect to the frequency and magnitude of mispricing. Furthermore, the results were charted across variables like maturity and with respect to basis. Non parametric tests were applied to establish statistical significance of the findings. The findings indicate that there existed significant mispricing in the stock futures studied. Most of the stock futures contracts were underpriced. These mispricing signals seemed to be largely unutilized by the arbitrageurs due to short selling restrictions at Indian bourses. A clear relationship was observed between basis and mispricing as well as maturity and mispricing. The implications of the findings can be manifold for all the participants in the derivatives market. The paper concluded with limitations of the study and directions for future research.

Keywords

Cost of Carry, Futures Mispricing , Non-Parametric Tests, Indian Derivatives

C12, E44, G13

Paper Submission Date : February 10, 2015 ; Paper sent back for Revision : April 15, 2015 ; Paper Acceptance Date : May 8, 2015.

User
Subscription Login to verify subscription
Notifications
Font Size

Abstract Views: 164

PDF Views: 0




  • An Empirical Investigation of Mispricing in Stock Futures at the National Stock Exchange

Abstract Views: 164  |  PDF Views: 0

Authors

Tanuj Nandan
Associate Professor, School of Management Studies, Motilal Nehru National Institute of Technology Allahabad, Allahabad - 211 004, Uttar Pradesh, India
Puja Agrawal
Faculty, Amity University, Sector 125, Noida - 201313, Uttar Pradesh, India
Shakshi Jindal
Student, Amity Business School, F - 3 Block, Amity University Campus, Sector 125, Noida - 201 313, Uttar Pradesh, India

Abstract


This paper is an attempt to study the mispricing in stock futures of India. The cost of carry model was operationalized in the present study. Any deviation from the theoretical price so arrived at connotes mispricing. In-depth analysis was conducted with respect to the frequency and magnitude of mispricing. Furthermore, the results were charted across variables like maturity and with respect to basis. Non parametric tests were applied to establish statistical significance of the findings. The findings indicate that there existed significant mispricing in the stock futures studied. Most of the stock futures contracts were underpriced. These mispricing signals seemed to be largely unutilized by the arbitrageurs due to short selling restrictions at Indian bourses. A clear relationship was observed between basis and mispricing as well as maturity and mispricing. The implications of the findings can be manifold for all the participants in the derivatives market. The paper concluded with limitations of the study and directions for future research.

Keywords


Cost of Carry, Futures Mispricing , Non-Parametric Tests, Indian Derivatives

C12, E44, G13

Paper Submission Date : February 10, 2015 ; Paper sent back for Revision : April 15, 2015 ; Paper Acceptance Date : May 8, 2015.




DOI: https://doi.org/10.17010/ijf%2F2015%2Fv9i9%2F77193