ABSTRACT

This study is carried out to check the causality between the returns spot prices and returns its future prices of companies listed in Pakistan Stock Exchanged. The study has used the daily time series data of twenty-five companies for 19 years. For analysis of data, different test has been applied to investigate the causal relationship. Descriptive statistics is used to check mean, minimum, maximum values of data. The ADF test is used for stationarity. Its result concludes that there is no problem of stationarity in data. Johansen cointegration test is used to check the relationship between data and Granger Causality has been used to check the causality between returns of spot and its future prices. The analysis suggests that cointegration exist between spot and future prices in all companies. Furthermore, the results also concludes that there is one way causality from SR to FR for eighteen companies and one way causality from future returns to spot returns for 3 companies and two-way causality for 4 companies. Variance decomposition suggest that most of its shocks are explained by its own. The findings of this study are important for investor in stock market who invest in spot and future market. As this study confer causality between spot and future so investor can take more informed and valid decision by giving them more knowledge.