Market Efficiency and Volatility Spill over in Spot & Futures Currency Market

Abstract

The present study has analysed the long term relationship between spot and future prices of currency (dollar) for the period of study between 01/06/2009 and 10/07/2013. The spot and future prices of the currency is found to have long term relationship which is supported by the existence of an error correction mechanism called arbitrage. The error correction mechanism restores the equilibrium relationship whenever disequilibrium takes place between the two markets. It is the spot price which corrects the disequilibrium in the market. The study also finds the presence of unidirectional causality in the currency market wherein the spot causes the future. Using Impulse response function,it is found that significant and higher response of future price to the spot price shocks of dollar and also Volatility spill over was from the spot price to the future price whereas, there was no evidence of volatility spill over from future to spot price.

The Lead Lag Relationship Between Spot and Futures Markets in the Energy Sector: Empirical Evidence From Indian Markets

“…Studies such as Wahab and Lashgari (1993), Chan and Lien (2001), Kumar and Chaturvedula (2007), Kumar and Tse (2009), Sriram and Senthil (2013), Zakaria (2012), Sehgal et al (2015), Boney et al (2018) have found the Spot Market playing a dominant role in the Price-Discovery process. In India, (Thenmozhi, 2002) and (Raju and Karande, 2003) analyzed the Lead-Lag and Price-Discovery of Equity Futures Market in India.…”

Price Discovery and Volatility Transmission in Currency Spot and Futures Markets in India: An Empirical Analysis

“…They concluded that spot market play dominant role in price discovery process than futures market. Sriram and Senthil (2013) explored price discovery and volatility spillover in spot and futures currency market by the use of co-integration, GARCH and ECMs. They used daily spot and futures prices of USD/INR from 1 June 2009 to 10 July 2013.…”