A A Study on Volatility Persistence and Spillover Effect Between Nifty and Nifty Futures

Abstract

This study investigates whether a significant spillover effect exists between the NIFTY spot and futures markets. Further, as the purpose of the study, we also determine  whether volatility persistence and asymmetry exist in both markets. As the methodology, the ten-year daily closing prices of the Nifty 50 and Nifty Futures Indices were collected, and GARCH (1,1), EGARCH, and DCC GARCH were used for the analysis. From the study, we found that a high level of volatility persists in both spot and futures markets, and the EGARCH test results reveal a significant volatility asymmetry in both spot and futures markets. The spillover effects analysis using the GARCH DCC model shows that a significant long-term and short-term volatility spillover effect is present between the two markets.  We conclude that these results will be of immense use for traders and investors to have a direction on volatility asymmetric effect, persistence, and volatility spillover effect between spot and futures markets. We also state that the study can be extended to stock futures, Bank Nifty indices, etc., and other GARCH methods can be employed in further studies.