Volatility–volume causality across single stock spot–futures markets in India

ABSTRACT

This study examines the causal relationships between volatility and volume across spot and futures market for the 50 constituent stocks of the CNX NIFTY Index. Granger non-causality tests implemented using vector autoregression (VAR) and asymmetric VAR models indicate the presence of significant causal relations from both the spot and futures volume to both the spot and futures volatility. Bidirectional causal relationships between spot and futures volume were observed for almost all stocks but few stocks displayed a similar relationship between volatilities. The results highlight the importance of volume in absorbing information and its behaviour as the conduit of information.

KEYWORDS:

• Volatility
• volume
• futures market
• spot market
• asymmetric vector autoregression
• causality
• NIFTY

JEL CLASSIFICATION:

• G10
• G14
• G15

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ World Federation of Exchanges Annual Report 2013, http://www.world-exchanges.org/files/statistics/pdf/WFE2013%20Annual%20Report_pv.pdf.

² The detailed results of unit root tests for each of the 50 spot–futures pairs have not been included due to paucity of space. This information can be obtained from the corresponding author on request.

³ Effectiveness of Market Interventions in Emerging Markets, Report of the Emerging Markets Committee of IOSCO, October 2010.

⁴ https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=35679.