Journal Press India®

Determining the Information Content of Futures Market Variables in India: A time Series Approach

Vol 12 , Issue 1 , January - June 2011 | Pages: 101-112 | Research Paper  

https://doi.org/10.51768/dbr.v12i1.121201108


Author Details ( * ) denotes Corresponding author

1. * Malabika Deo, Professor & Head of Commerce, Pondicherry University, Puducherry, India
2. K. Srinivasan, Assistant Professor, Department of Management Studies, Christ University, Bangalore, Karnataka, India

In this paper the causal nexus between futures return, trading volume, open  interest and volatility for  S&P  CNX  Nifty  futures markets were  analyzed for  the  period from  January 1,  2002  to September 30,  2009.  In view of the priority given to dynamic relationship in conducting this study, the Johansen-Juselius Multivariate cointegration, Vector Error Correction Model (VECM), Impulse Response Function (IRF) and Variance Decomposition (VDC), are used as empirical evidence. Our result reveals, that the causal linkage of return are influenced by all the other variables, whereas the ECTs coefficients are negative and significant in the long-run but their values are too high to be in equilibrium. We conclude that, any deviation from the equilibrium Cointegrating relationships, as measured by the ECTs, is mainly caused by changes in returns and volatility. In the  case  of IRF appears to be broadly consistent with earlier VECM results trading volume, open interest and volatility remain consistent over  the period, whereas the fluctuation in futures return was  mainly determined by the other future market variables. Finally, there exist a bi-directional causal relationship between futures market variables in the short-run and unidirectional causality running from trading volume and open interest with return and volatility bears the brunt of short-run adjustment to long-run equilibrium.

Keywords

Futures Market Variables, Volatility, Information Content, Cointegration, VECM.

  1. Bessembinder, H. and Seguin, P. (1992), Futures Trading Activity and Stock Price Volatility, The Journal of Finance, Vol. 47, pp.2015-34.
  2. Bessembinder, H. and Seguin, P. (1993), Price Volatility, Trading Volume, and Market Depth: Evidence from Futures Markets, Journal of Financial and Quantitative Analysis, Vol. 29, pp.21-39.
  3. Brailsford, T.J. (1996), The Empirical Relationship between Trading Volume, Returns and Volatility, Accounting and Finance, Vol. 36, pp.89-111.
  4. Chen, G., Firth, M. and Rui, O.M. (2001), “The Dynamic Relation between Stock Returns, Trading Volume, and Volatility”, The Financial Review, Vol. 38, pp.153-174.
  5. Clark, P.K. (1973), A Subordinated Stochastic Process Model with Finite Variance for Speculative Prices, Econometrica, Vol. 4, pp.135-155.
  6. Copeland, T.E. (1976), “A Model for Asset Trading under the Assumption of Sequential Information Arrival”, Journal of Finance, Vol. 31, pp.1149-1168.
  7. Daigler, R and Wiley, M. (1999), “The Impact of Trader Type on the Futures Volatility-Volume Relation”, Journal of Finance, Vol. 54, pp.2297-2316.
  8. Epps, T. and Epps, M. (1976), “The Stochastic Dependence of Security Price Changes and Transaction Volumes: Implications for the Mixture of Distribution Hypothesis”, Econometrica, Vol. 44, pp.305-321.
  9. Figlewski, S. and Cornell (1981), “Futures Trading and Volatility in the GNMA Market”, Journal of Finance, Vol. 36, pp.445-456.
  10. Jennings, R.H., Starks, L.T., and Fellingham, J.C. (1981), “An Equilibrium Model of Asset trading with Sequential Information Arrival”, Journal of Finance, Vol. 36, pp.143-161.
  11. Johansen, S. (1988), “Statistical Analysis and Cointegrating Vectors”, Journal of Economic Dynamics and Control, Vol. 12, pp.231-254.
  12. Karpoff, J.M. (1987), A Relation between Price Changes and Trading Volume: A Survey, Journal of Financial and Quantitative Analysis, Vol. 22, pp.109-26.
  13. Lastrapes, W.D. and Lamoureux. C.G. (1990), Heteroskedasticity in Stock Return Data: Volume versus GARCH Effects, Journal of Finance, Vol. 45, pp.221-230.
  14. MacKinnon, J.G. (1991), Critical Values for Cointegration Tests, In R.F. Engle and C. Granger (eds), Long-run Economic Relationships, Oxford: Oxford University Press.
  15. Martikainen, T., Puttonen, V., and Luoma, M. (1994), “The Linear and Non-Linear dependence of Stock Returns and Trading Volume in the Finnish Stock Market”, Applied Financial Economics, Vol. 4, pp.159-169.
  16. Miyakoshi, T. (2002). ARCH versus Information-Based Variances: Evidence from the Tokyo Stock Market, Japan and the World Economy, Vol. 14, No. 2, pp.215-231.
  17. Morgan, I.G. (1976), “Stock Prices and Heteroskedasticity”, Journal of Business, Vol. 49, pp.496-508.
  18. Omran, M.F. and McKenzie, E. (2000), Heteroskedasticity in Stock Returns Data Revisited: Volume versus GARCH effects, Applied Financial Economics, Vol. 10, pp.553-560.
  19. Pati, P.C. and Kumar, K.K. (2006), Maturity and Volume Effect on the Volatility Evidences from NSE Nifty Futures, The ICFAI Journal of Derivatives Markets, Vol. 4, No. 4, pp.44-63.
  20. Pyun, C., Lee, S., and Nam, K. (2000), “Volatility and Information Flows in Emerging Equity Markets: A Case of the Korean Stock Exchange”, International Review of Financial Analysis, Vol. 9, pp.405-420.
  21. Ragunathan, Vanitha and Peker, Albert (1997), Price Variability, Trading Volume and Market Depth: Evidence from the Australian Futures Market, Applied Financial Economics, Vol. 7 pp.447-454.
  22. Rogalski. R.J (1978), The Dependence of Prices and Volume, The Review of Economics & Statistics, Vol. 36, pp.268-274. Schwert, W. (1989), Stock Volatility and the Crash of 87, Review of Financial Studies, Vol. 3, pp.77-102.
  23. Schwert, G.W and Seguin, P.J. (1990), “Heteroskedasticity in Stock Returns”, Journal of Finance, Vol. 45, pp.1129-1155.
  24. Srinivasan, Malabika, and Murugesan (2009), “The Dynamic Relationship between Price Volatility, Trading Volume and Market Depth: Empirical Evidence from Indian Stock Futures Market”, Competitive Management in a Dynamic World, IRCFMF-2009, University of Colombo, Sri Lanka, pp.490-499.
  25. Tauchen, G.E. and Pitts, M. (1983), “The Price Variability – Volume Relationship on Speculative Market”, Econometrica, Vol. 51, pp.485-505.
  26. Watanabe, Toshiaki (2001), Price Volatility, Trading Volume, and Market Depth: Evidence from the Japanese Stock Index Futures Markets, Applied Financial Economics, Vol. 11, pp.651-658.
  27. Ying, C.C. (1966), Stock Market Prices and Volumes of Sales, Econometrica, Vol. 34, pp.676-686.
Abstract Views: 1
PDF Views: 264

Advanced Search

News/Events

Institute of Managem...

Deccan Education Society Institute of Management Development and Re...

S.B. Patil Institute...

Pimpri Chinchwad Education Trust's S.B. Patil Institute of Mana...

D. Y. Patil IMCAM, A...

D. Y. Patil Institute of Master of Computer Applications & Managem...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management International Conference on ...

Department of Commer...

Department of Commerce, Faculty of Commerce & Business, University...

Birla Institute of M...

Birla Institute of Management Technology (BIMTECH) 3rd Pritam Singh M...

OP Jindal University...

OP Jindal University, India 4th International Conference on  ...

Department of MBA, N...

Department of MBA, Narayana Engineering College Nellore International...

Vignana Jyothi Insti...

Vignana Jyothi Institute of Management Conference Proceedings,...

Online Proceedings R...

Conference Proceedings, March 2023 ISBN: 978-81-956810-6-8 ...

By continuing to use this website, you consent to the use of cookies in accordance with our Cookie Policy.