Intraday Price Discovery in Indian Stock Index Futures Market : New Evidence from Neural Network Approach

This research aims to revisit the price discovery relationship between spot and futures prices of Indian equity index S&P CNX Nifty, using neural network approach. This study uses minute-by-minute prices of 167 trading days ranging from January, 2015 to August, 2015 to gain fresh insights on price discovery. The results reveal that change in futures prices lead the change in spot prices in training and testing of our sample. Neural network is an advanced methodology which is more effective in capturing non-linear relationship between spot and futures prices. Therefore, the results of this study could be considered more reliable and more robust as compared to previous studies for Indian market. Mean absolute error of the results indicates that, incorporation of futures returns in modelling spot returns improves the model by 30.8%. Whereas, inclusion of spot returns in modelling futures returns improves the results by only 25.4%. Though bidirectional spillover effect is present between spot and futures returns, but the futures returns are more dominant and more efficient. Therefore, it could be concluded that futures market serves as price discovery vehicle