Intraday Price Discovery between Spot and Futures Markets of NIFTY 50: An Empirical Study during the Times of COVID-19

Abstract

The current study investigates the intraday dynamics of futures and spot markets in India. By analyzing one-minute data of Nifty 50 and the associated futures index, the study finds that both the markets are cointegrated. The results of the VECM reveal that any disequilibrium between the spot and futures market is restored by the spot market. Granger causality tests reveal that the spot and futures markets have a bidirectional causal relationship. Common factor weights and Hasbrouck's information share (IS) reveal the greater role of the futures market in price discovery. Gonzalo and Granger's common factor model indicates that the permanent factor is made up of futures series only. Using the BEK-GARCH model, we found two-way volatility spillovers between the spot and futures markets. The futures market is found to have a greater impact in terms of volatility spillovers also. The findings of our research are relevant to investors, money managers, traders, and policymakers.