Is There Any Real Market Indicator to Predict Stock Index Returns? A SEM Approach
Advances in Economics and Business
The collapse of Lehman Brothers that led to global financial crisis had not left the Indian market too. During crisis many investors who determine their strategies in the underlying market based on the traditional indices and future prices movements were clueless about the plunge in the markets. The two benchmark stock indices, the Nifty and Sensex have ceased to reflect the 'true' performance of Indian stock markets today (Business Line, ). Thus investors tracking the market based on the
... ket based on the popular indices alone as the market indicator will not suffice their hunger for building profitable trading strategies. Thus in the current scenario, to gauge any uncertainty in the market and to capture the underlining market movements in a systematic manner, the market volatility, liquidity, futures price should be closely monitored. Hence, this paper aimed at looking into the complex relationship between India VIX (Volatility Index), Index Futures, Open Interest (Liquidity) and NIFTY (Market) by applying Structural Equation Model (SEM) by which the impact of VIX, Nifty Futures and Open Interest on Nifty prices and their inter-relationships were studied to better understand the underlying market performance.