Mutual Relationship between NIFTY Stock Index Future and Spot Markets

By using daily data of India market, an effort has been made to investigate the possible volatility and price-discovery relationships between the NIFTY spot index and index futures market with techniques of ARCH/GARCH model, Johansen´s Cointegration test and Granger Causality test. The main conclusions of this paper are as follows: firstly, the introduction of stock index future (SIF) helps reduce the volatility of spot market in emerging countries like India; Secondly, the price-discovery function of SIF is gradually improved with the expansion of trading scale and liquidity and therefore the scale of transaction is an insignificant effect for the successful practice of SIF.