Do the single stock futures and the underlying stocks Lead-Lag? Empirical evidence from Indian markets

Abstract

The Individual Stock Futures has proved immensely successful Financial Instrument on Indian bourses, and NSE has continued to account for the majority of total volumes traded in Stock Futures Segment all over the World. We analyse Single Stock Futures (SSFs) to understand their contribution to price leadership using the most liquid markets for the SSFs in the World. The study aims at analysing the intraday Lead-Lag association between 30 most liquid and actively-traded and their Underlying Stocks by applying 1-Minute Price Returns from 1st April 2017 to 31st March 2019. The study explores Price discovery between Stock Futures and their Underlying Stocks by applying VECM, Hasbrouck (1995) Information Shares, and Common Factor Component Weights of Gonzalo and Granger (1995). The findings indicate that trades in the Futures Market contribute more to Price discovery than Spot Market.