Relationship between futures price and open interest in Stock and Index futures in the Indian Stock Markets: Empirical analysis

Abstract

The study is an attempt to find a relation between the change in the prices of futures contracts of specific stocks and the change in Open Interest. Participants in the stock markets believe that the amount of open interest in a particular contract has a bearing on the behavior of the price of the contract. This popular perception is put to test in the following research by correlating the change in open interest in stock futures with the change in the futures prices. Empirical data has been collected from bhav copies published by the National Stock Exchange, India and then the data is subjected to correlation analysis to find out the significance of these parameters. The daily price data and open interest data is collected for sixteen stocks and the index (NIFTY) for a period of 4 years. The correlation between the change in futures price and the change in open interest is calculated for near month contracts of these seventeen futures contracts.