Price Discovery in NSE Spot and Futures Markets of Selected Oil and Gas Industries in India : What Causes What?

Johansen's cointegration technique followed by the Vector Error Correction Model (VECM) were employed to examine the causal relationship between National Stock Exchange (NSE) spot and futures markets prices of selected nine oil and gas industry stocks of India. The empirical analysis was conducted on the daily data series from May 12, 2005 to January 29, 2009. The analysis reveals that there exists a long-run relationship between spot and futures prices of each of the selected individual securities. Besides, the study also indicates a bidirectional relationship between spot and futures markets prices in the case of four oil industry stocks, spot leading the futures price in the case of three stocks, and the futures leading the spot price in the case of two selected gas and oil industry stocks