A Statistical Analysis of the Stochastic Drift between Sensex & Nifty- an in-Depth Study

Abstract

Predicting stock market behaviour has been quite an extensive research domain for many years for now. It makes the work simpler and easy to derive the pattern of a market movement if both are stochastically drifted in a similar direction. S&P BSE Sensex has been in existence since late 1970s, and developed as an Index in the early 1980s. In 1986, it developed the BSE [1]SENSEX index, giving the BSE a means to measure overall performance of the exchange. In 2000, the BSE used this index to open its derivatives market, trading S&P BSE SENSEX futures contracts.CNX Nifty or NSE 50 was incorporated in 1992 as a tax-paying company and was recognized as a stock exchange in 1993 under the Securities Contracts (Regulation) Act, 1956.[1]CNX NSEplatform offers trading, clearing and settlement services in equity, equity derivatives, and debt and currency derivatives segments. It is the first exchange in India to introduce the electronic trading facility. Conventional wisdom depicts that FII & DII move the markets, however,  research shows a different picture, similarly, this study is to reveal whether the common wisdom of Sensex and Nifty moving along in similar directions is correct or not. This study is also to identify the driver and driven Index patterns through waveform analysis. If the Indexes are closely cointegrated then the arbitrage opportunity will drastically come down increasing the efficiency in both the capital markets.