EXAMINING THE IMPACT OF STRUCTURAL BREAKS ON PRICE DISCOVERY EFFICIENCY: EVIDENCE FROM THE INDIAN EQUITY FUTURES MARKET
DOI :
https://doi.org/10.12775/CJFA.2021.016Mots-clés
structural breaks, global financial crisis, change in government, demonetization, COVID-19 and price discoveryRésumé
The current study aims to examine the impact of structural breaks on price discovery efficiency of Indian equity futures market. Global financial crisis, change of Government, demonetization and COVID-19 are identified as significant events. Data is divided into sub-samples of pre and post event period to study the impact of these events on price discovery efficiency of the Indian equity futures market. Unit root test is used to check stationarity of data. Granger causality test, Johansen’s cointegration test and Vector error correction methodology (VECM) are used for analysis. During full sample period, it is observed that there is a significant bi-directional causality between cash and futures markets and cash market leads futures market in price discovery. In addition, global financial crisis triggered volatility in Indian equity futures market, which reduced its price discovery efficiency, whereas, after change in Government, bidirectional transmission of information restored between cash market and futures market. Furthermore, futures market played a leading role in absorbing volatility triggered by demonetization. COVID-19 did not significantly affect price discovery efficiency of Indian equity futures market.
Références
Adämmer, P., Bohl, M.T., & Gross, C. (2016). Price Discovery in Thinly Traded Futures Markets: How Thin is Too Thin? Journal of Futures Markets, 36(9), 851-869. http://dx.doi.org/10.1002/fut.21760.
Aggarwal, N., & Thomas, S. (2019). When Stock Futures Dominate Price Discovery. Journal of Futures Markets, 39(3), 263-278. http://dx.doi.org/10.1002/fut.21973.
Ali, R., & Afzal, M. (2012). Impact of Global Financial Crisis on Stock Markets: Evidence from Pakistan and India. E3 Journal of Business Management and Economics, 3(7),275-282.
Antoniou, A., Holmes, P., & Priestley, R. (1998). The Effects of Stock Index Futures Trading on Stock Index Volatility: An Analysis of the Asymmetric Response of Volatility to News. The Journal of Futures Markets, 18(2), 151-166. https://doi.org/10.1002/(SICI)1096-9934(199804)18:2<151::AID FUT2>3.0.CO;2-1.
Bachelier, L. (1900). Theory of speculation. In P.H. Cootner (Ed.). The Random Character of Stock Market Prices. Cambridge: MIT Press.
Beaulieu, M.C., Ebrahim, S.K., & Morgan, I.G. (2003). Does Tick Size Influence Price Discovery? Evidence from the Toronto Stock Exchange. Journal of Futures Markets: Futures, Options, and Other Derivative Products, 23(1), 49-66. http://dx.doi.org/10.1002/fut.10053.
Bohl, M.T., Salm, C.A., & Schuppli, M. (2011). Price Discovery and Investor Structure in Stock Index Futures. Journal of Futures Markets, 31(3), 282-306. http://dx.doi.org/10.1002/fut.20469.
Booth, G.G., So, R.W., & Tse, Y. (1999). Price Discovery in the German Equity Index Derivatives Markets. Journal of Futures Markets, 19(6), 619-643. http://dx.doi.org/10.1002/fut.20469.
Bosch, D., & Pradkhan, E. (2017). Trading Activity and Rate of Convergence in Commodity Futures Markets. Journal of Futures Markets, 37(9), 930-938. http://dx.doi.org/10.1002/fut.21831.
Bose, S. (2007). Contribution of Indian Index Futures to Price Formation in the Stock Market. Money & Finance, 3(1), 39-56.
Brailsford, T., & Hodgson, A. (1997). Mispricing in Stock Index Futures: A Re‐Examination using the SPI. Australian Journal of Management, 22(1), 21-45. http://dx.doi.org/10.1177/031289629702200102.
Chatrath, A., & Song, F. (1998). Information and Volatility in Futures and Spot Markets: The Case of the Japanese Yen. The Journal of Futures Markets, 18(2), 201-223. http://doi.org/10.1002/(SICI)1096-9934(199804)18:2<201::AID-FUT5>3.0.CO;2-V.
Chauhan, S., & Kaushik, N. (2017). Impact of Demonetization on Stock Market: Event Study Methodology. Indian Journal of Accounting, 49(1), 127-132.
Cowles 3rd, A., & Jones, H.E. (1937). Some a posteriori probabilities in stock market action. Econometrica, 5(3), 280-294. http://dx.doi.org/10.2307/1905515.
Demir, M., Martell, T.F., & Wang, J. (2019). The Trilogy of China Cotton Markets: The Lead–Lag Relationship among Spot, Forward, and Futures Markets. Journal of Futures Markets, 39(4), 522-534. http://dx.doi.org/10.1002/fut.21981.
Fama, E. (1970). Efficient capital markets: a review of theory and empirical work. Journal of Finance, 25(2), 383-417. http://dx.doi.org/10.2307/2325486.
Floros, C., & Vougas, D.V. (2008). The Efficiency of Greek Stock Index Futures Market. Managerial Finance, 34(7), 498-519. http://dx.doi.org/10.1108/03074350810874451.
Gerlach, R., Wilson, P., & Zurbruegg, R. (2006). Structural Breaks and Diversification: The Impact of the 1997 Asian Financial Crisis on the Integration of Asia-Pacific Real Estate Markets. Journal of International Money and Finance, 25(6), 974-991. http://dx.doi.org/10.1016/j.jimonfin.2006.07.002.
Gupta, K., & Kaur, M. (2015). Impact of Financial crisis on Hedging Effectiveness of Futures Contracts: Evidence from the National Stock Exchange of India. South East European Journal of Economics and Business, 10(2), 69-88. http://dx.doi.org/10.1515/jeb-2015-0009.
Gupta, K., & Singh, B. (2006). Investigating the Price Discovery Efficiency of Indian Equity Futures Market. Paradigm, 10(2), 33-45. http://dx.doi.org/10.1177/0971890720060206.
Hasbrouck, J. (1995). One Security, Many Markets: Determining the Contributions to Price Discovery. The Journal of Finance, 50(4), 1175-1199. http://dx.doi.org/10.1111/j.1540-6261.1995.tb04054.x.
Karmakar, M., & Inani, S. (2019). Information Share and its Predictability in the Indian Stock Market. Journal of Futures Markets, 39(10), 1322-1343. http://dx.doi.org/10.1002/fut.22041.
Kawaller, I.G., Koch, P.D., & Koch, T.W. (1987). The Temporal Price Relationship between S&P 500 Futures and the S&P 500 Index. The Journal of Finance, 42(5), 1309-1329. http://dx.doi.org/10.1111/j.1540-6261.1987.tb04368.x.
Kendall, M. (1953). The analysis of economic time series. Journal of the Royal Statistical Society, Series A, 116(1), 11-34. http://dx.doi.org/10.2307/2980947.
Khanthavit, A. (2020). World and National Stock Market Reactions to COVID-19. ABAC Journal, 40(2), 1-20.
Korn, O., Krischak, P., & Theissen, E. (2019). Illiquidity Transmission from Spot to Futures Markets. Journal of Futures Markets, 39(10), 1228-1249. http://dx.doi.org/10.1002/fut.22043.
Kumar, U., & Tse, Y. (2009). Single-Stock Futures: Evidence from the Indian Securities Market. Global Finance Journal, 20(3), 220-234. http://dx.doi.org/10.1016/j.gfj.2009.06.004.
Leblang, D., & Mukherjee, B. (2005). Government Partisanship, Elections, and the Stock Market: Examining American and British stock returns, 1930-2000. American Journal of Political Science, 49(4), 780-802. http://dx.doi.org/10.1111/j.1540-5907.2005.00155.x.
Nageri, K.I. (2019). Evaluating Volatility Persistence of Stock Return in the Pre and Post 2008-2009 Financial Meltdown. Copernican Journal of Finance & Accounting, 8(3),75-94. http://dx.doi.org/10.12775/CJFA.2019.013.
Osborne, M.F.M. (1959). Brownian motion in the stock market. Operations Research, 7(2), 145-173. http://dx.doi.org/10.1287/opre.7.2.145.
Pástor, Ľ., & Stambaugh, R.F. (2012). Are Stocks Really Less Volatile in the Long Run? Journal of Finance, 67(2), 431-478. http://dx.doi.org/10.1111/j.1540-6261.2012.01722.x.
Pástor, Ľ., & Veronesi, P. (2012). Uncertainty about Government Policy and Stock Prices. Journal of Finance, 67(4), 1219-1264. http://dx.doi.org/10.1111/j.1540-6261.2012.01746.x.
Pettenuzzo, D., & Timmermann, A. (2011). Predictability of Stock Returns and Asset Allocation under Structural Breaks. Journal of Econometrics, 164(1), 60-78. http://dx.doi.org/10.1016/j.jeconom.2011.02.019.
Roy, P.S., & Chakraborty, T. (2020). Efficiency of Indian Equity Futures Market—An Empirical Analysis with reference to National Stock Exchange. Global Business Review. http://dx.doi.org/10.1177/0972150920920462.
Sakthivel, P., Veera Kumar, K., Raghuram, G., Govindarajan, K., & Vijay Anand, V. (2014). Impact of Global Financial Crisis on Stock Market Volatility: Evidence from India. Asian Social Science, 10(10), 86-94. http://dx.doi.org/10.5539/ass.v10n10p86.
Topcu, M., & Gulal, O.S. (2020). The Impact of COVID-19 on Emerging Stock Markets. Finance Research Letters, 36, 101691. http://dx.doi.org/10.1016/j.frl.2020.101691.
Wagay, B.A. (2018). Bharatiya Janata Party led NDA Govt (2014–2018): Assessment, Challenges and Prospects for upcoming 2019 General Elections. Research Journal of Humanities and Social Sciences, 9(4), 772-778. http://dx.doi.org/10.5958/2321-5828.2018.00130.4.
Working, H. (1934). A random difference series for use in the analysis of time series. Journal of the American Statistical Association, 29(185), 11-24. http://dx.doi.org/10.2307/2278456.
(www1) Securities and Exchange Board of India – Annual Report of Securities and Exchange Board of India 2004-05 to 2019-20, https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=4&ssid=80&smid=101 (accessed: 24.06.2021).
Téléchargements
Publiée
Comment citer
Numéro
Rubrique
Licence
Ce travail est disponible sous licence Creative Commons Attribution - Pas de Modification 4.0 International.
Stats
Number of views and downloads: 626
Number of citations: 0
