Price Discovery and Volatility on NSE Futures Market

This paper studies price discovery and volatility in the context of introduction of Nifty futures at the National Stock Exchange (NSE) in June 2000. Cointegration and Generalised Auto Regressive Conditional Heteroscedasticity (GARCH) techniques are used to study price discovery and volatility respectively. The major findings are that the futures market (and not the spot market) responds to deviations from equilibrium; price discovery occurs in both the futures and the spot market, especially in the later half of the study period. The results also show that volatility in the spot market has come down after the introduction of stock index futures.