IJEMR2023130228

International Journal of Engineering and Management Research e-ISSN: 2250-0758 | p-ISSN: 2394-6962
Volume-13, Issue-2 (April 2023)

https://ijemr.vandanapublications.com https://doi.org/10.31033/ijemr.13.2.28
Impact of Future Price on Spot Price of Indian Stock Market

Dr. Swati Mehta
Assistant Professor, Prof. V.B. Shah Institute of Management, Amroli, Veer Narmad South Gujarat University, Surat,
Gujarat, INDIA
Corresponding Author: swatimehta2210@gmail.com
Received: 16-03-2023 Revised: 05-04-2023 Accepted: 28-04-2023
ABSTRACT introduction of future trading as compared to the

This paper examines the impact of future trading developed nations, with which the country has been
on spot price volatility by using regression Analysis. The trying to integrate, is market. According to some
main objective of this paper is to investigate whether the researcher future trading may leads to inefficiency in
existence of future markets in India has improved the rate stock market. The rejection of weak form efficiency will
at which new information is impounded into spot prices
enable investor to predict future price on the basis of past
and have any persistence effect. The results gathered from
the study indicate that even though it has been in operation prices through technical analysis to earn abnormal profit.
for a short period of time, the futures market in India has The inefficiency of stock market will help regulators and
significantly increased the rate at which new information is authorities to determine the best way to influence stock
transmitted into spot prices and that it has reduced the prices, reduce volatility and evaluate the consequences of
persistence of information and volatility in underlying spot different economic policies.
market resulting in improved efficiency. The results of this
study have also some important implications for policy
makers discussed in the final section of this paper.
II. LITERATURE REVIEW
Keywords-- Derivatives Market, Future Price, Spot Alok Kumar Mishra, et al., (2007) Discussed
Market, Regression Analysis in their research of volatility spill overs provides useful
insights into how information was transmitted from stock
market to foreign exchange market and vice versa. This
study explores volatility spill overs between the Indian
I. INTRODUCTION stock and foreign exchange markets. The results indicate
that there exists a bidirectional volatility spillover
The Indian stock market if affected by many between the Indian stock market and the foreign exchange
macroeconomics factors like, inflation rate, interest rate, market with the exception of S&P CNX NIFTY and S&P
economic trend in foreign market, foreign investment, CNX 500. The findings of the study also suggest that
government policy and derivatives market. Also both the markets move in tandem with each other and
expanded use of derivatives has promoted expression of there was a long run relationship between these two
alarm from some legislator and regulators and the markets. The results of significant bidirectional volatility
member of the press about the risks this new global spill over suggest that there was an information flow
activity poses to cooperation’s global capital market and (transmission) between these two markets and both these
overall economic. The popular press has also dealt with markets were integrated with each other. Accordingly,
derivatives market by reporting the risks cause by financial managers can obtain more insights in the
derivatives trading and the regulation of derivatives management of their international portfolio affected by
market. So, there is need to examine the impact of these two variables. This should be particularly important
derivatives on stock market. The main purpose of to domestic as well as international investors for hedging
introducing derivatives trading was to enable investors to and diversifying their portfolio.
hedge the risk. But most of the investors are using Ravi Singla, (2008) Identified in the research
derivative trading for speculation and arbitrage to earn that the effect of derivatives trading on the volatility of
profit which affects the behavior of stock market. The underlying spot market had always remained a topic of
impact of future and options on the stock market are still empirical interest. Yet the literature was still in
not clear. So, it becomes necessary to study the impact of conclusive on the issue that whether the introduction of
derivatives on Indian stock market. derivatives trading increases or decreases the volatility in
The problem under study is, “A study on future the underlying cash market. Theoretically, a number of
price impact on spot price of Indian stock market” The arguments had been given supporting both of these
speculator growth of the derivative market has brought views. On the one side it was argued that the introduction
forth the question of the impact of future trading on of derivatives trading brings in new investors, improves
efficiency of the stock markets in India and where stock liquidity in the market, increases information flows,
market of India stands in term of stability after provides more investment choices, leads to better price
169 This work is licensed under Creative Commons Attribution 4.0 International License.
discovery and thereby reduces volatility. On the other volatility of the underlying spot return and futures return.
hand, it was also the viewpoint of many financial experts The period of study was from 1st January 2000 to 31st
that allowing derivatives trading invites huge December 2010 for the prices. The study used three
participation from speculative investors, leads to stock indices of NSE namely Nifty, CNX IT and CNX
excessive leveraged positions and thereby increases Bank. The index futures time series analyzed here uses
volatility in the underlying spot market. The present data on the near month contract as they were most
research compares the volatility in the periods of pre and heavily traded. The study had used four measures of
post introduction of index derivative contracts by volatility. The study finds that for the three NSE indices,
computing the rolling standard deviations and the the study rejects the null hypothesis of 'no significant
variances in the daily return data of S&P CNX Nifty change in relative inter-day volatility between spot prices
Index over different period event windows. and futures prices' over the entire period 2000-2010, but
Aisyah Abdul Rahman, et al., (2009) cannot reject the hypothesis fully for all the individual
Divulged in their research that the interactions between years.
selected macro-economic variables and stock prices for
the case of Malaysia in a VAR framework. Some III. SCOPE OF STUDY
conventional econometric techniques were applied along
with a battery of complementary tests to trace out both The derivatives market is developing segment
short and long run dynamics. Upon testing a vector error which affect the stock market in number of ways. The
Correction model, they show that changes in Malaysian derivatives market consists of number of instruments
stock market index do perform a cointegrating like, stock future, index future, stock option, index
relationship with changes in money supply, interest rate, option and interest rate future. As the stock future is
exchange rate, reserves and industrial production index. largely traded instrument, the study confines itself to
Our lag exclusion test shows that all six variables stock futures trading which will help to compare the
contribute significantly to the co-integrating relationship. impact of future trading on different sectors.The scope
Thisshows that the Malaysian stock market was sensitive of the study is limited to impact of stock futures trading
to changes in the macroeconomic variables. Furthermore, on two aspect of Indian stock market: efficiency of stock
based on the variance decomposition analysis, this study market and volatility of stock market. Since NSE is the
highlights that Malaysian stock market had stronger major contributor of the derivatives market, top 10
dynamic interaction with reserves and industrial securities of major sectors listed on NSE/BSE and having
production index as compared to money supply, interest futures trading has been taken to represent the Indian
rate and exchange rate. stock market. This study is based on the secondary
Gaurav Agrawal, et al., (2010) Determined in source of data collection. It uses daily closing prices of
their research that the relationship between Nifty returns the securities. All these data regarding the closing prices
and Indian rupee-US Dollar Exchange Rates. Several have been gathered mainly from the secondary sources,
statistical tests had been applied in order to study the NSE/BSE website being the most significance one.
behavior and dynamics of both the series. The study also
investigates the impact of both the time series on each IV. SIGNIFICANT OF STUDY
other. The period for the study had been taken from
October 2007 to March 2009 using daily closing indices. Derivatives are introduced for the purpose of
In this study, it was found that Nifty returns as well as the hedging risks involved in financial transaction. But
Exchange Rates were non-normally distributed. Through investors are using derivatives instruments for the
unit root test, it was also established that the time series, purpose of earning extra profit. The presence of
Exchange rate and Nifty returns, were stationary at the derivatives trading affects the stability of the stock market
level form itself. Correlation between Nifty returns and as it createsvolatility and inefficiency in the market. So, it
Exchange Rates was found to be negative. Further becomes necessary for the regulator to study impact of
investigation into the causal relationship between the two derivatives trading on stock market behavior. This study
variables using Granger Causality test highlighted will help regulator to form appropriate policies as market
unidirectional relationship between Nifty returns and would have to pay a certain price, such as a loss of
Exchange Rates, running from the former towards the market efficiency for the sake of market stabilization.
latter. This research will help regulator to take decision in case
Sathya Swaroop Debasish, (2011) Divulged In derivatives trading adversely affect stock market because
their research the change, if any, inthe volatility observed there may be need for increasing the regulation of these
in the Indian stock market due to the introduction of markets. However, if the introduction of derivatives is
futures trading. The change in the volatility was found to cause stabilization, it may be strongly suggested
compared in terms of the structure of the volatility. This to regulator to liberalize the regulation of the derivatives
was done to give insights in to the way the futures market. Understanding the impact of derivatives trading
market was influencing the Indian spot market's volatility. on behavior of stock market is important to investors who
The main objective of the study was to investigate seek to find whether the opportunity of making excess
whether there had been significant change in relative
return dose exist in stock market. This study will also VI. RESEARCH DESIGN
help investors to make investment decision and their
knowledge of the existence of inefficiency and volatility The Description is used for frequencies,
would be very useful for developing investment averages and other statistical calculation. Often the best
strategies. approach, prior to writing descriptive research, is to
conduct a survey investigation. Qualitative research often
V. OBJECTIVE OF STUDY has the aim of description and researchers may follow-up
with examinations of why the observations exist and what
To investigate the impact of future price on spot the implication of the findings are. In short descriptive
price. research deals with everything that can be counted and
To analyze the significant relationship between studies.
spot price and future price.
VII. DATA ANALYSIS
For measuring relationship between future price
and spot price, 5 scripts are selected i.e. Reliance, SBI,
HDFC, ICICI, TCS.
Correlation between
Spot Future and spot price
RIL 0.780583
TCS 0.930634
SBI 0.934823
HDFC 0.867133
ICICI 0.941238
From the above table, it is found that the is 0.930634 , of SBI is 0.934823, of HDFC is 0.867133
correlation between spot price future price of RIL is and ICICI is 0.941238
0.780586699. It shows that future of company & spot VII.1 Regression Analysis to measure impact of
price of company it highly positive correlation. It rivals future price on spot price
that if there are the change in spot/future price, changes VII.1.1 Regression Analysis to measure impact of
will be also on future/spot price in same direction. The future price on spot price of RIL
correlation between spot price and futureprice of ITCS
Regression Statistics
Multiple R 0.780586699
R Square 0.609315594
Adjusted R Square 0.570247154
Standard Error 89.88290788
Observations 11
ANOVA
DF SS MS F Significance F
Regression 1 125999.971 125999.971 15.59610738 0.002733866
Residual 10 80789.37129 8078.937129
Total 11 206789.3423
Coefficients Standard Error t Stat P-value

Intercept 169.3277398 606.6037626 0.279140603 0.785824808
Future PRICE 0.937853224 0.237479851 3.949190725 0.00273866
It can be observed from table 1 that all is effect of independent variables (Future price) on
explanatory variables, taken together establish a dependent variable (Spot price). From table , it can be
relationship nearly 78.05% (Multiple R=0.780586699) observed T that value of T statistics is P= 4.77563E-
of total variables in the Y= spot price impact on future 15for independent variable of future price which is
price in each month. This means whatever changes in the significant at 5% level of significance and hence thus
spot price for the period under study the future price is shows that there is significant impact of future price on
responsible up to 78.05%. fromthis it can be deduced that spot price (dependent variable). Beta coefficient of future
there is another factor which have indirectly affected the is= 0.983847478 thereby accepting that future price has
spot price of share. Above table , significant F value = the positive impact on spot price. Spot price is expressed
0.002733866 which is less than 0.05. it indicates that the and effectedby 0.983847478 of future price.
Null Hypothesis is rejected and Alternative Hypothesis is VII.1.2 Regression Analysis to measure impact of
selected. It shows regression model is fit. It means there future price on spot price of RIL of TCS
Multiple R 0.930633656
R Square 0.866079002
Observations 12
ANOVA
DF SS MS F Significance
F
Regression 1 479292.6 479292.6 64.67089 1.12E-05
Residual 10 74112.57 7411.257
Total 11 553405.2
Coefficients Standard t Stat P-value
Error
Intercept 324.6854492 380.8104 0.852617 0.413826
future 0.899207342 0.111816 8.041821 1.12E-05
It can be observed from table 1 that all fit. It means there is effect of independent variables
explanatory variables, taken together establish a (Future price) on dependent variable (Spot price). From
relationship nearly 93.06% (Multiple R=0.930633656) table 3, it can be observed T that value of T statistics is P
of total variables in the Y= spot price impact on future = 1.12E-05 for independent variable of future price which
price in each month. This means whatever changes in the is significant at 5% level of significance and hence thus
spot price for the period under study the future price is shows that there is significant impact of future price on
responsible up to 93.06%. fromthis it can be deduced that spot price (dependent variable). Beta coefficient of future
there is another factor which have indirectly affected the is = 0.899207342 thereby accepting that future price has
spot price of share. Above table 2, significant F value = the positive impact on spot price. Spot price is expressed
1.12E-05 which is less than 0.05. it indicates that the and effected by 0.899207342 of future price.
Null Hypothesis is rejected and Alternative VII.1.3 Regression Analysis to measure impact of
Hypothesis is selected. It shows regression model is future price on spot price of RIL of SBI
Multiple R 0.934823
R Square 0.873895
Observations 12
ANOVA
Regression 1 23370.07 23370.07 69.29869 8.3E-06
Residual 10 3372.367 337.2367
Total 11 26742.43
Coefficients Standard Error T Stat P-value
Intercept 8.064342 62.5777 0.128869 0.900016

Future 0.998834 0.119986 8.324584 8.3e-06
It can be observed from table 1 that all there is effect of independent variables (Future price) on
explanatory variables, taken together establish a dependent variable (Spot price).
relationship nearly 93.48% (Multiple R=0.934823) of From table , it can be observed T that value of T
total variables in the Y= spot price impact on future price statistics is P = 8.3E-06 for independent variable of future
in each month. This means whatever changes in the spot price which is significant at 5% level of significance and
price for the period under study the future price is hence thus shows that there is significant impact of
responsible up to 93.48%. from this it can be deduced that future price on spot price (dependent variable). Beta
there is another factor which have indirectly affected the coefficient of future is = 0.998834 thereby accepting that
spot price of share. Above table, significant F value = future price has the positive impact on spot price. Spot
8.3E-06 which is greater than 0.05. it indicates that the price is expressed and effected by 0.998834 of future
Null Hypothesis is accepted and Alternative Hypothesis price.
is rejected. It shows regression model is fit. It means VII.1.4 Regression Analysis to measure impact of
future price on spot price of RIL of HDFC
Multiple R 0.867133
R Square 0.75192
Observations 12
ANOVA
Regression 1 59698.85 59698.85 30.3096 0.00026
Residual 10 19696.35 1969.635
Total 11 79395.21
Coefficients Standard Error t Stat P-value

Intercept 88.4559 250.3444 0.353337 0.731171
Future PRICE 0.941158 0.170951 5.505415 0.00026
It can be observed from table 1 that all spot price of share. Above table 2, significant F value =
explanatory variables, taken together establish a 0.00026 which is greater than 0.05. it indicates that the
relationship nearly 86.71% (Multiple R=0.867133) of Null Hypothesis is accepted and Alternative Hypothesis
total variables in the Y= spot price impact on future price is rejected. It shows regression model is fit. It means
in each month. This means whatever changes in the spot there is effect of independent variables (Future price) on
price for the period under study the future price is dependent variable (Spot price).
responsibleup to 86.71%. from this it can be deduced that VII.1.5 Regression Analysis to measure impact of
there is another factor which have indirectly affected the future price on spot price of RIL of ICICI
Multiple R 0.941238
R Square 0.885929
Observations 12
ANOVA
Regression 1 66186.18 66186.18 77.66467 5E-06
Residual 10 8522.045 852.2045
Total 11 74708.22
Coefficients Standard Error P-value
T Stat
Intercept 62.65357 85.83685 0.729915 0.482191
Future 0.933518 0.105928 8.812756 5e-06
PRICE
It can be observed from table 1 that all observed T that value of T statistics is P = 5E-06 for
explanatory variables, taken together establish a independent variable of future price which is significant
relationship nearly 94.12% (Multiple R=0.941238) of at 5% level of significance and hence thus shows that
total variables in the Y= spot price impact on future price there is significant impact of future price on spot price
in each month. This means whatever changes in the spot (dependent variable). Beta coefficient of future is =
price for the period under study the future price is 0.933518 thereby accepting that future price has the
responsible up to 94.12%. from this it can be deduced that positive impact on spot price. Spot price is expressed and
there is another factor which have indirectly affected the effected by 0.933518 of future price.
spot price of share. o Above table 2, significant F value =
5E-06 which is greater than 0.05. it indicates that the Null VIII. FINDINGS
Hypothesis is accepted and Alternative Hypothesis is
rejected.It shows regression model is fit. It means there is Findings of Regression Analysis for m measuring
effect of independent variables (Future price) on impact of future price on spot price
dependent variable (Spot price). From table 3, it can be
No. Company Name P Value Significant or Not

Significant
1. Reliance Industry 0.002733866 Significant
2. Tata Constantly Service 1.12E-05 Significant
3. SBI 8.3E-06 NOT Significant
4. HDFC 0.00026 Significant
5. ICICI Bank 5E-06 Significant
Regression Line:
No. Company Name Regression Line
1. RIL Spot price = 169.3277398 + 0.937853224 (futureprice)
2. TCS Spot price = 324.6854492 + 0.899207342 (future price)
3. SBI Spot price = 8.064342 +0.998834 (future price)
4. HDFC Spot price = 88.4559 + 0.941158 (future price) HDFC
5. ICICI Bank Spot price = 62.65357 + 0.933518 (future price)
IX. CONCLUSION market prices. Journal of Business, 38(1), 34-

105.
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ANNEXTURE
MONTH HDFC- HDFC- ICICI- ICICI-

(2022) SPOT FUTURE SPOT FUTURE
PRICE PRICE PRICE PRICE
January 1485.7 1498 788.8 780
February 1426.25 1472 742.7 767
March 1470.35 1419 730.3 710
April 1384.6 1470 743.3 742
May 1388.95 1362 752.85 731
June 1348 1365 707.2 721
July 1434.2 1391 818.6 749
August 1486.1 1468 887.3 852
September 1421.35 1454 862 878
October 1496.7 1453 908.7 891
November 1608.45 1568 952.9 933
December 1628.15 1630 890.85 923
MONTH RIL- RIL- TCS- TCS- SBI- SBI-

(2022) SPOT FUTURE SPOT FUTURE SPOT FUTURE
PRICE PRICE PRICE PRICE PRICE PRICE
January 2386.6 2415 3736.25 3800 538.3 501
February 2359.55 2365 3554.2 3655 483.2 510
March 2634.75 2464 3739.95 3629 493.55 475
April 2790.25 2707 3546.7 3653 496.3 501
May 2632.65 2648 3364.35 3403 468.1 473
June 2595.65 2679 3267.1 3291 465.9 460
July 2509.45 2509 3301.9 3217 528.35 498
August 2637.95 2589 3211.15 3270 531.25 530
September 2377.75 2488 3004.55 3105 530.6 535
October 2549.6 2467 3193.15 3097 573.8 553
November 2731.35 2646 3390.8 3314 602.45 594
December 2547.2 2647 3256.7 3347 613.7 606

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International Journal of Engineering and Management Research e-ISSN: 2250-0758 | p-ISSN: 2394-6962

Volume-13, Issue-2 (April 2023)

Impact of Future Price on Spot Price of Indian Stock Market

Corresponding Author: swatimehta2210@gmail.com

Received: 16-03-2023 Revised: 05-04-2023 Accepted: 28-04-2023

ABSTRACT introduction of future trading as compared to the

Regression 1 125999.971 125999.971 15.59610738 0.002733866

Residual 10 80789.37129 8078.937129

Coefficients Standard Error t Stat P-value

Residual 10 74112.57 7411.257

Coefficients Standard Error T Stat P-value

Intercept 8.064342 62.5777 0.128869 0.900016

Regression 1 59698.85 59698.85 30.3096 0.00026

Residual 10 19696.35 1969.635

Coefficients Standard Error t Stat P-value

No. Company Name P Value Significant or Not

IX. CONCLUSION market prices. Journal of Business, 38(1), 34-

MONTH HDFC- HDFC- ICICI- ICICI-

MONTH RIL- RIL- TCS- TCS- SBI- SBI-

January 2386.6 2415 3736.25 3800 538.3 501

February 2359.55 2365 3554.2 3655 483.2 510

March 2634.75 2464 3739.95 3629 493.55 475

April 2790.25 2707 3546.7 3653 496.3 501

May 2632.65 2648 3364.35 3403 468.1 473

June 2595.65 2679 3267.1 3291 465.9 460

July 2509.45 2509 3301.9 3217 528.35 498

August 2637.95 2589 3211.15 3270 531.25 530

September 2377.75 2488 3004.55 3105 530.6 535

October 2549.6 2467 3193.15 3097 573.8 553

November 2731.35 2646 3390.8 3314 602.45 594

December 2547.2 2647 3256.7 3347 613.7 606

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