Price Discovery of Currency Futures at NSE

Title

Price Discovery of Currency Futures at NSE

Creator

Jose J.; Mandala G.N.; Desai K.; Hussaini N.; Shamshuddin S.

Description

The current study aimed to examine the causal relationship between the NSE currency future rates and currency spot rates in order to identify the price discovery mechanism at NSE market and its integration with foreign exchange market (spot market). To study the causal relationship between the said markets, we have considered daily closing rates for NSE currency futures and currency spot rates for selected pairs of currencies, i.e. USD/INR, GBP/INR, JPY/INR and EURO/INR. The data was obtained from www.nseindia.com and www.investing.com for the period from Jan-2010 to Sep-2017, which makes approximately 1750 observations for each currency pair in each market. It is found that the spot rate for JPY/INR leads the future rate. It is also identified that the spot rate for USD/INR does not cause the changes in futures. It indicates that the market integration between spot and futures at NSE for currency pair USD/INR is strong compared to other selected currency pairs. From the variance decomposition test we found that there is almost no impact of variance in USD/INR spot rate on future rate variance forecast errors. It implies that the causal relationship between for USD/INR spot and future rates is strong and mature compared to the measured causal relationships for the remaining currency pairs. This study concludes that the price discovery process for currency pair USD/INR is better at NSE currency futures among the selected currency pairs. Copyright 2022 by authors, all rights reserved. Authors agree that this article remains permanently open access under the terms of the Creative Commons Attribution License 4.0 International License

Source

Universal Journal of Accounting and Finance, Vol-10, No. 1, pp. 276-285.

Date

2022-01-01

Publisher

Horizon Research Publishing

Subject

Currency futures; Foreign exchange market; NSE; Spot market

Coverage

Jose J., Department of Professional Studies, Christ University, India; Mandala G.N., Department of Professional Studies, Christ University, India; Desai K., Department of Professional Studies, Christ University, India; Hussaini N., Department of Professional Studies, Christ University, India; Shamshuddin S., Department of Management Studies, Gandhi Institute of Technology and Management, India

Rights

All Open Access; Gold Open Access

Relation

ISSN: 23319712

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.13189/UJAF.2022.100128

https://www.scopus.com/inward/record.uri?eid=2-s2.0-85133620143&doi=10.13189%2fUJAF.2022.100128&partnerID=40&md5=f9705a3a91f816c3f7966271c93034e2