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Intraday price discovery and volatility transmission between the dual-listed stock index futures and spot markets – new evidence from India

Author

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  • Sivakumar Sundararajan
  • Senthil Arasu Balasubramanian

Abstract

Purpose - This study empirically explores the intraday price discovery mechanism and volatility transmission effect between the dual-listed Indian Nifty index futures traded simultaneously on the onshore Indian exchange, National Stock Exchange (NSE) and offshore Singapore Exchange (SGX) and its spot market by using high-frequency data. Design/methodology/approach - This study applies the vector error correction model to analyze the lead-lag relationship in price discovery among three markets. The contributions of individual markets in assimilating new information into prices are measured using various measures, Hasbrouck's (1995) information share, Lien and Shrestha's (2009) modified information share and Gonzalo and Granger's (1995) component share. Additionally, the Granger causality test is conducted to determine the causal relationship. Lastly, the BEKK-GARCH specification is employed to analyze the volatility transmission. Findings - This study provides robust evidence that Nifty futures lead the spot in price discovery. The offshore SGX Nifty futures consistently ranked first in contributing to price discovery, followed by onshore NSE Nifty futures and finally by the spot. Empirical results also show unidirectional causality and volatility transmission from Nifty futures to spot, as well as bidirectional causal relationship and volatility spillovers between NSE and SGX Nifty futures. These novel findings provide fresh insights into the informational efficiency of the dual-listed Indian Nifty futures, which is distinct from previous literature. Practical implications - These findings can potentially help market participants, policymakers, stock exchanges and regulators. Originality/value - Unlike previous studies in this area, this is the first study that empirically examines the intraday price discovery mechanism and volatility spillover between the dual-listed futures markets and its spot market using 5-min overlapping price data and trivariate econometric models.

Suggested Citation

  • Sivakumar Sundararajan & Senthil Arasu Balasubramanian, 2023. "Intraday price discovery and volatility transmission between the dual-listed stock index futures and spot markets – new evidence from India," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 20(5), pages 1888-1907, August.
    • Handle: RePEc:eme:ijoemp:ijoem-07-2022-1097
    DOI: 10.1108/IJOEM-07-2022-1097
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