Does Lead-Lag Relationship Exist Among Large Cap, Mid Cap and Small Cap Segments of Indian Capital Market?

The study investigates the lead-lag relationship among the large-cap, mid-cap, and small-cap segments of the Indian capital market. The daily total return index values data represent three segments i.e., Nifty 100, Nifty Midcap 150, and Nifty Smallcap 250 are collected. The Granger causality test is employed to capture the lead-lag relationship among the indices. The dynamic interaction and decomposition among the indices have been explained using the Impulse Response Function (IRF) and Variance decomposition (VDC). The empirical analysis reveals that Nifty Smallcap 250 is caused by both Nifty 100 and Nifty Midcap 150. The study concluded that Nifty 100 is the market leader, and Nifty Smallcap 250 is the market's follower. The study results are relevant for investors and portfolio managers as they may keep track of Nifty 100 index, which might bring considerable additional benefits and help the investor in portfolio risk management.