Volatility Persistence and Asymmetric Effect in NSE Spot-Futures Markets in India : A Comparison

The present research article examined the asymmetric effect and volatility persistence between equity spot and futures markets in India. Daily closing equity spot and futures prices of 14 stocks (ACC Limited., Ambuja Cement Ltd., Asian Paint Ltd., Bank of Baroda, Larson and Turbo Ltd. (L&T), National Thermal Power Corporation (NTPC) Ltd., Oil and Natural Gas Corporation (ONGC) Ltd., Punjab National Bank (PNB), Ranbaxy Laboratory Ltd, Reliance Industries Ltd., State Bank of India (SBI), Tata Consultancy Services (TCS) Ltd., Tata Power Corporation Ltd. and Wipro Ltd.) from June 12, 2000 to 31 March, 2016 were used. Both volatility persistence as well as volatility feedback effect was examined by the use of Generalized AutoRegressive Conditional Heteroskedasticity (GARCH) and Exponential-GARCH (E-GARCH) models. Present investigation help to realize that volatility in NSE Spot and Futures are approximate same and some stocks (Ambuja, L&T, Ranbaxy and Reliance) also shows unusual behaviour as it is more affected by positive news and some stocks (ACC, Asian Paint, Bank of Baroda, NTPC, ONGC, PNB, SBI and TCS) have highest leverage effect and asymmetric response., which identifies the high volatility persistence in stocks. The Results highlights the characteristics of volatility linkages between NSE spot and NSE futures markets, and also establish relevant information for investors, policymakers, researchers and hedgers for future investments and further analysis. It contributes to the market efficiency and leverage effect literature for equity spot-futures markets