TITLE:
Efficiency of Currency Derivatives in Price Discovery Process: Evidences from India
AUTHORS:
Prashant Sharma, Varun Chotia
KEYWORDS:
Price Discovery, Short Run Causality, Long Run Causality, Vector Error Correction Model (VECM)
JOURNAL NAME:
Theoretical Economics Letters,
Vol.9 No.5,
June
27,
2019
ABSTRACT: The present study
investigates the efficiency of currency derivatives market by assessing its contribution towards price discovery
process using spot and future prices of four currencies (USD/INR, EURO/INR, GBP/INR and JPY/INR)
traded on the National Stock Exchange (NSE), India. As per the investigation,
it can be concluded that there is a long run equilibrium relationship between
spot rates and future rates, with unidirectional causality running from future
rates to spot rates for all currencies under consideration. As the futures
markets contribute more to the price discovery, this implies that more
investors are attracted to it. This in turn leads to more rational price
discovery.