Global Stock Futures : A Diagnostic Analysis Of A Selected Emerging And Developed Markets With Special Reference To India

In this paper we investigate the nature of dynamic relationship that exists amongst selected futures indexes in American, European and Asian continents. A total of nine futures indexes are selected for investigation. The correlations among the future indexes on regional account are found to be strongly positive which is suggestive that the indexes are affected more on regional news rather on world news. The futures indexes are found to be non-stationary and American and Asian futures markets are not cointegrated, while European futures markets are found to be cointegrated. It implies that diversification and risk reduction is possible in American and Asian futures markets, but not likely in European futures markets on individual regional basis. However, the futures markets are cointegrated on inter-region basis, meaning thereby that long-term dynamic equilibrium relationship exists amongst the inter-region futures indexes, for instance, American and European, American and Asian, Asian and European futures markets. The results suggest risk diversification is less possible between regions, yet arbitrage opportunity may exist due to short-term deviation from the long-term equilibrium. Granger Casualty test reveals that directional relationship exists amongst various futures markets. The Vector Autoregression, shows that error correction term is significant but small and close to zero. It signifies that the long-run equilibrium is affected by short-run deviations, but such deviations are small that quickly revert to equilibrium condition. The impulse response analysis documents that emerging market in American continent, i.e., Mexico has a reflective effect on US Futures market while in Europe, the FTSE 100 Futures index has a predominating character. For the European futures, the France and UK futures indexes are dynamically deviating on short-run period as the shock is found to transmit in a powerful manner over the time horizon, while it is found to be low for S&P MIB (Italian futures index), revealing short-term deviations are less in this case. In Asian region, Kospi 200 Futures is found to response comparatively higher with respect to Nifty Futures and MSCI SGX Futures. The facts as revealed in our study are useful for the global fund managers in their effort to diversify risk, as cointegrated markets give little opportunity to minimize the risk through diversifications, while the non-cointegrated markets do. Nevertheless, since the cointegration is also useful to analyze arbitrage opportunity, the fund managers can utilize such opportunities available in the futures markets to their advantages by understanding the nature and extent of short-run deviations from equilibrium. The results are also important for the policy makers as the desired impact of introduction of regulatory or deregulatory measures could be affected due to underlying linkages, whose cumulative effect may remain hidden and which could jeopardize the policy framework. The policy makers may incorporate these linkages into their policy decisions model to make their implementation process successful.