| In the absence of market imperfections or frictions, any new information isexpected to reflect in both spot and derivative market instantaneously but in reality this hardly exists. The nature of the market microstructure results in a lead/ lag relationship and one market acts a dominant while other acts a satellite market. In this study, we examine the information transmission process between spot and options segments of the NIFTY 50, benchmark index of India. The daily data files stretch from 1 April 2009 to 31 March 2014. Cointegration and related tools were used to examine the price discovery process and it was found out that spot is the dominant trading platform vis-à-vis options for NIFTY 50 index and price signals emanating from spot are being factored in by speculators to hedge their risk in derivatives market. The findings are useful for investment professionals, traders, regulators and academia. |