Journal Press India^®

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In this paper the causal nexus between futures return, trading volume, open  interest and volatility for  S&P  CNX  Nifty  futures markets were  analyzed for  the  period from  January 1,  2002  to September 30,  2009.  In view of the priority given to dynamic relationship in conducting this study, the Johansen-Juselius Multivariate cointegration, Vector Error Correction Model (VECM), Impulse Response Function (IRF) and Variance Decomposition (VDC), are used as empirical evidence. Our result reveals, that the causal linkage of return are influenced by all the other variables, whereas the ECTs coefficients are negative and significant in the long-run but their values are too high to be in equilibrium. We conclude that, any deviation from the equilibrium Cointegrating relationships, as measured by the ECTs, is mainly caused by changes in returns and volatility. In the  case  of IRF appears to be broadly consistent with earlier VECM results trading volume, open interest and volatility remain consistent over  the period, whereas the fluctuation in futures return was  mainly determined by the other future market variables. Finally, there exist a bi-directional causal relationship between futures market variables in the short-run and unidirectional causality running from trading volume and open interest with return and volatility bears the brunt of short-run adjustment to long-run equilibrium.

Keywords

Futures Market Variables, Volatility, Information Content, Cointegration, VECM.

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