Open Access Subscription Access
Open Access Subscription Access
Is Currency Futures Market at NSE India Informationally Efficient?
In a perfectly efficient and frictionless market, futures price should move concurrently with the underlying spot price without any lead or lag in price movements across markets. Futures price should be an unbiased estimator of the future spot price at the expiration date. Traders, exporters, importers and MNCs are exposed to foreign exchange risk to hedge their foreign currency exposures. They enter in to currency future contract. The hedging effectiveness depends on the efficiency of currency future market. In this paper, we analyse the efficiency of currency future market at National Stock Exchange (NSE) of India for sample period. The various parametric and non-parametric tests have been applied to test the efficiency of US $ currency futures market at NSE in India. Johansen’s Cointegration reports that US dollar futures and spot series are cointegrated and possess long run equilibrium with each other. From Granger Causality results, we find that there is one-way causality from US dollar futures to spot market. Therefore, we conclude that currency future market at NSE India is informationally efficient. Hence, US dollar futures can be used to hedge against US dollar denominated foreign exchange exposure.
- • Bhat, A. & Arekar, K. (2015). An empirical test of efficiency of exchange-traded currency options in India. Business and Economics Research Journal, 6(4), pp.1.
- • Cornell, B. (1977). Spot rates, forward rates and exchange market efficiency. Journal of financial Economics, 5(1), pp. 55-65.
- • DeMaskey, A. L. (1995). A comparison of the effectiveness of currency futures and currency options in the context of foreign exchange risk management. Managerial Finance, 21(4), pp. 40-51.
- • Dixit, A., Yadav, S. S. & Jain, P. K. (2010). Informational efficiency of implied volatilities of S&P CNX Nifty index options: a study in Indian securities market. Journal of Advances in Management Research, 7(1), pp. 32-57.
- • Gaikwad, A. (2013). India: The Next Forex Derivatives Destination?ASBBS Annual Conference: Las Vegas Vol. 20(1).
- • Hodrick, R. J. & Srivastava, S. (1987). Foreign currency futures. Journal of International Economics, 22(1-2), pp. 1-24.
- • Jochum, C. & Kodres, L. (1998). Does the introduction of futures on emerging market currencies destabilize the underlying currencies?. Staff Papers, 45(3), pp. 486-521.
- • Kohlscheen, E. & Andrade, S. C. (2013). Official interventions through derivatives: affecting the demand for foreign exchange (No. 317).
- • Mahanta, D. (2012). Indian currency futures: an analytical study of its performance. International Journal of Marketing, Financial Services & Management Research, 1(11), pp. 72-77.
- • Malarvizhi, K. & Jaya, M. (2012). An analytical study on the movement of NIFTY Index and Exchange rate. International Journal of Marketing and Technology, 2(7), pp. 274.
- • Ogden, J. P. & Tucker, A. L. (1988). The relative valuation of American currency spot and futures options: Theory and empirical tests. Journal of Financial and Quantitative Analysis, 23(4), pp. 351-368.
- • Sehgal, S., Ahmad, W. & Deisting, F. (2015). An investigation of price discovery and volatility spill overs in India’s foreign exchange market. Journal of Economic Studies, 42(2), pp. 261-284.
- • Singh, N. P. (2012). Effect of sub-prime crisis on the efficiency of Indian stock market--an empirical study. Abhigyan, 29(4), pp. 11-23.
- • Singh, S., Tripathi, L. K. & Lalwani, K. (2012). An empirical study of impact of exchange rate & inflation rate on performance of BSE Sensex. Spectrum: A Journal of Multidisciplinary Research 1(3), ISSN 2278‐0637
- • Singhvi, A. S. & Pandya, R. A. (2016). Currency derivatives and their impact on value of currency. Journal of Accounting and Financial Management, Vol. 3(7), 2016, pp. 59-96.
Abstract Views: 58
PDF Views: 1