The Effect of Index Futures Contracts on Indices in Futures Markets

Abstract

The floating exchange rate system has caused both interest rate and exchange rate risk. This situation required companies to focus on risk management. Measuring and managing risk has come to the fore. At this point, the person responsible for the finance of a firm must know how to use the derivatives and how they will be priced. Today, the importance of futures markets is very huge. The period in which they affect the spot market may also change in the country-based period. The aim of the study from developing countries like Turkey, India, Brazil and China, to examine the impact of the spot market on futures markets. In this context, the daily closing values of the mentioned markets and the end-of-day settlement prices of the futures contracts are used. Stability of series was examined in country basis, and the appropriate delay lengths were determined by establishing VAR model. In addition, the existence of any long term relation has been examined by using the Johansen cointegration test and the status of the relationship is determined by applying the Granger causality test. As a result, it has been determined that in India and China, the future markets have a positive effect on spot market whereas in Turkey and Brazil they have no effect.

Keywords: Johansen Cointegration Test, Granger Causality, Futures market, Quantitive study, BIST30

DOI: 10.7176/JSTR/5-2-29