Title: A Study of the Relation Between Market Index, Index Futures and Index ETFs: A Case Study of India
Abstract: The efficiency of trading in securities market is a matter of serious concern for investors as well as regulators. Innovations in securities market environment can adversely affect market efficiency. Index futures and index ETFs are two such innovations in the securities market. Both these instruments have the stock market index as their underlying asset. All the three instruments together constitute a group of informationally linked instruments traded simultaneously and continuously in the securities market. This paper analyses empirically the price behavior of stock market index, index futures and index ETFs in the Indian securities market. The price data for one year (April 2011 to March 2012) have been used for the analysis. The objective of the analysis is to identify market inefficiencies or distortions in the trading of these instruments which are conceptually linked to each other. The daily return and volatility of daily return are the principal variables used in the study. The results indicate that the instruments exhibit generally consistent price behavior. However, some distortions due to speculative influence and operational inefficiency are also seen presumably because of the innovative nature of the instruments as far as the Indian securities market is concerned.
Publication Year: 2013
Publication Date: 2013-01-01
Language: en
Type: article
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Cited By Count: 1
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