Short-term Long-term and Causal Impact of Volume and Open Interest on Nifty Spot & Future Index

Abstract

According to the market expert, increase in volume with increase in price is the indicator of bull phase in the cash segment. On the other hand, increase in open interest and at the same time increase in future price is the good sign of upward trending in the derivative segment. However, increase in volume and open interest indicates that the price will go up very soon. In the equity market effect of volume and open interest is very important and indicative which is the indicator of stock specific price movement vis-a-vis overall market movement.

We have twofold objectives in this paper.First one is to investigate the short -run, long run or casual relation between market volume and nifty spot index and second one is to examine the fact is there any short -run, long -run or casual relation exists between open interests and nifty future in the future market. We have found long run relationship in both cases. So far as short term relationship is concerned, we have found that disequilibrium is being corrected @ 9.64 % quarterly in case of nifty spot and volume and in the second experiment relating to nifty future and open interest we have found that disequilibrium is being corrected @ 3.75% quarterly. In response to our causality tests, we have found unidirectional causal relation in both cases.