Impulsive Clustering and Clout Effect in Indian Derivative Market

Abstract

newlineThe financial system of a nation is dependent on various factors; one of the key newlineplayers is the capital market. A growth in capital market decides the growth a nation as it newlinegives an idea on real economy. A sustainable financial system is dependent on stronger newlinecapital market. A spectacular result of Indian capital market is observed in last few newlinedecades. There lies a long debate that the growth in the capital market can be attributed newlinedue to the commencement of derivative in the stock market. In particular, to this concept newlinean analysis of stock index future and its corresponding indices are an area that needs a newlinedetail analysis. The present paper will focus on identifying the price fluctuation and the newlineco-integration between the stock index futures of India. The motivation behind the topic newlineis from various literature like Danthine J. (1978), French, Schwert, and Stambaugh newline(1987), Stoll and Whaley (1990), Brorsen (1191), Mukharjee, Kedarnath and Mishra newline(2000), Gulen H. and Mayhew S. (2000), Bandivadekar S. and Ghosh S. (2003), Sah A. newlineN. and Omkarnath G. (2005), Gupta K. and Singh B. (2006), Floros C. and Vougas D. newlineV.( 2008), Debasish (2011), Mall (2012). In every literature the findings support a newlinestrong relationship between the future index and its respective spot markets index. This newlineresult to reduction in volatility, discovery of price and improve the efficiency of the newlinemarket But very less evidence was observed on the stock future market and its newlinecorresponding indices. The literature also encounters that equity market plays major role newlinein price discovery even in Indian context. So, a study on the causal relationship among newlinethe future and its corresponding indices will help to identify the directional relationship newlineto predict the movement and support in portfolio management for risk hedging. newlineThe past literature provides sufficient evidence that equity market plays a key newlinerole in the price discovery of the underlying shares. But the stock market is always found newlineto be highly volatile which affects the investors in predicting the price movement of the newlineshares or indices. Some of the studies said that the shares or indices are dependent on newlinevarious factors like the macroeconomic variables, change of foreign stock markets, the newlineflow of information in the market and etc. Adding to it some of the researchers also newlineconfirmed the causal relationship between the shares and indices helps the investors to newlinepredict the directional movement of the share price. newlinevii newlinePast literature identified the price dependency of shares and indices for a long run newlineor short run which helped the beneficiaries in risk management, price discovery or newlineportfolio diversification for capital creation. newlineAfter reviewing a wide range of literature the overall summary can be drawn that