“Lead-lag relationship between futures &spot returns”

This paper attempts to explore the empirical relationship between the spot and future returns in the context of selected banking stocks in the Indian stock market. The main objective of the study is to determine the causal relationship of returns between the two markets. The data used in the study include the daily closing prices and the futures prices for the period of three years, from November 2008 to November 2011. The study adopts linear regression model, co-integration technique and Granger Causality Testfor analysing the data.The major findings of the study indicate thevolatility to be positiveduring the period. There is a long-run relationship between the Spot and futures market of selected banks’ stocks. The results also indicate bi-directional causality between the spot market andfutures market among the selected banks stock.