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Intraday price discovery and volatility transmission between the dual-listed stock index futures and spot markets – new evidence from India

Sivakumar Sundararajan (Department of Management Studies, National Institute of Technology, Tiruchirappalli, India)
Senthil Arasu Balasubramanian (Department of Management Studies, National Institute of Technology, Tiruchirappalli, India)

International Journal of Emerging Markets

ISSN: 1746-8809

Article publication date: 8 August 2023

87

Abstract

Purpose

This study empirically explores the intraday price discovery mechanism and volatility transmission effect between the dual-listed Indian Nifty index futures traded simultaneously on the onshore Indian exchange, National Stock Exchange (NSE) and offshore Singapore Exchange (SGX) and its spot market by using high-frequency data.

Design/methodology/approach

This study applies the vector error correction model to analyze the lead-lag relationship in price discovery among three markets. The contributions of individual markets in assimilating new information into prices are measured using various measures, Hasbrouck's (1995) information share, Lien and Shrestha's (2009) modified information share and Gonzalo and Granger's (1995) component share. Additionally, the Granger causality test is conducted to determine the causal relationship. Lastly, the BEKK-GARCH specification is employed to analyze the volatility transmission.

Findings

This study provides robust evidence that Nifty futures lead the spot in price discovery. The offshore SGX Nifty futures consistently ranked first in contributing to price discovery, followed by onshore NSE Nifty futures and finally by the spot. Empirical results also show unidirectional causality and volatility transmission from Nifty futures to spot, as well as bidirectional causal relationship and volatility spillovers between NSE and SGX Nifty futures. These novel findings provide fresh insights into the informational efficiency of the dual-listed Indian Nifty futures, which is distinct from previous literature.

Practical implications

These findings can potentially help market participants, policymakers, stock exchanges and regulators.

Originality/value

Unlike previous studies in this area, this is the first study that empirically examines the intraday price discovery mechanism and volatility spillover between the dual-listed futures markets and its spot market using 5-min overlapping price data and trivariate econometric models.

Keywords

Citation

Sundararajan, S. and Balasubramanian, S.A. (2023), "Intraday price discovery and volatility transmission between the dual-listed stock index futures and spot markets – new evidence from India", International Journal of Emerging Markets, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJOEM-07-2022-1097

Publisher

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Emerald Publishing Limited

Copyright © 2023, Emerald Publishing Limited

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