Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India

Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from... This paper aims to investigate price responses and volatility spillovers between commodity spot and futures markets. The study ultimately seeks the evidence-based claims on the efficiency of the long run and short run horizontal price transmissions from futures markets to spot markets.Design/methodology/approachThis study used the most recent daily price series of pepper, cardamom and rubber, during the period 2004–2019, use “cointegration-ECM-GARCH framework” and verify the persisting validity of the “expectancy theory” of commodity futures pricing.FindingsThe results offer overwhelming evidence of futures market dominance in the price discoveries and volatility spillovers in spot markets. However, this paper finds asymmetric responses between cash and futures prices across markets. The hedging efficiency of futures contracts is commodities specific’ where spices futures are more efficient than the rubber futures.Practical implicationsThe study passes on vital information to the producers and traders of spices and rubber who have a potential interest in the use of futures contracts to make profits from arbitrage between futures and cash markets.Originality/valueThe paper is unique in terms of understanding asymmetric price linkages in markets for plantation crops. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Indian Growth and Development Review Emerald Publishing

Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India

Download PDF
26 pages

Loading next page...
 
/lp/emerald-publishing/measuring-volatility-spillovers-and-asymmetric-responses-of-agri-RM7BFCPGA7
Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1753-8254
DOI
10.1108/igdr-10-2020-0147
Publisher site
See Article on Publisher Site

Abstract

This paper aims to investigate price responses and volatility spillovers between commodity spot and futures markets. The study ultimately seeks the evidence-based claims on the efficiency of the long run and short run horizontal price transmissions from futures markets to spot markets.Design/methodology/approachThis study used the most recent daily price series of pepper, cardamom and rubber, during the period 2004–2019, use “cointegration-ECM-GARCH framework” and verify the persisting validity of the “expectancy theory” of commodity futures pricing.FindingsThe results offer overwhelming evidence of futures market dominance in the price discoveries and volatility spillovers in spot markets. However, this paper finds asymmetric responses between cash and futures prices across markets. The hedging efficiency of futures contracts is commodities specific’ where spices futures are more efficient than the rubber futures.Practical implicationsThe study passes on vital information to the producers and traders of spices and rubber who have a potential interest in the use of futures contracts to make profits from arbitrage between futures and cash markets.Originality/valueThe paper is unique in terms of understanding asymmetric price linkages in markets for plantation crops.

Journal

Indian Growth and Development Review – Emerald Publishing

Published: Jun 15, 2021

Keywords: Commodity markets; Spices; Rubber; Cointegration; ECM; GARCH; C58; G01; G17

References

  • Financialization in commodity markets: a passing trend or the new normal?
    Adams, Z.; Glück, T.
  • Do futures markets help in price discovery and risk management for commodities in India?
    Aggarwal, N.; Jain, S.; Thomas, S.
  • Efficiency in agricultural commodity futures markets in India: evidence from cointegration and causality tests
    Ali, J.; Gupta, K.B.
  • On the spot-futures relationship in crude-refined petroleum prices: new evidence from an ARDL bound testing approach
    Arfaoui, M.
  • Price discovery of credit spreads in tranquil and crisis period
    Avino, D.; Lazae, E.; Varotto, S.
  • Distinguishing between equilibrium and integration in spatial price analysis
    Barrett, C.B.; Li, J.R.
  • Cointegration and market efficiency in commodities futures markets
    Beck, S.E.
  • Price discovery in agricultural commodity markets: do speculators contribute?
    Bohl, M.T.; Siklos, P.L.; Stefan, M.; Wellenreuther, C.
  • A trading strategy based on the lead-lag relationship between the spot index and futures contract for the FTSE 100
    Brooks, C.; Rew, A.G.; Ritson, S.
  • Are derivatives dangerous? A literature survey
    Capelle-Blancard, G.
  • Informed trading in stock and option markets
    Chakravarty, S.; Gulen, H.; Mayhew, S.
  • Financialization of commodity markets
    Cheng, I.H.; Xiong, W.
  • Price discovery in the black pepper market in Kerala, India
    Chopra, A.; Bessler, D.A.
  • Asymptotic normality of narrow-band least-squares in the stationary fractional cointegration model and volatility forecasting
    Christensen, B.J.; Nielsen, M.O.
  • Price discovery in Indian commodity futures market: an empirical exercise
    Dey, K.; Maitra, D.
  • Can futures markets accommodate Indian farmers?
    Dey, K.; Maitra, D.
  • Weak-form efficiency vs semi-strong form efficiency in price discovery: an application to international black tea markets
    Dharmasena, S.; Bessler, D.
  • Distribution of the estimators for autoregressive time series with a unit root
    Dickey, D.A.; Fuller, W.A.
  • Likelihood ratio statistics for autoregressive time series with a unit root
    Dickey, D.A.; Fuller, W.A.
  • Better to give than to receive: predictive directional measurement of volatility spillovers
    Diebold, F.X.; Yilmaz, K.
  • Whether commodity futures market in agriculture is efficient in price discovery? An econometric analysis
    Easwaran, R.S.; Ramasundaram, P.
  • Evaluating the hedging effectiveness in crude palm oil futures market during financial crises
    Go, Y.H.; Lau, W.Y.
  • The fundamentals of commodity futures returns
    Gorton, G.; Hayashi, F.; Rouwenhorst, K.G.
  • Investigating causal relations by econometric models and cross-spectral methods
    Granger, C.W.J.
  • An empirical analysis of market efficiency and price discovery in Indian commodity market
    Gupta, S.; Choudhary, H.; Agarwal, D.R.
  • Price discovery and efficiency of Indian agricultural commodity futures market: an empirical investigation
    Inani, S.K.
  • A speculative bubble in commodity futures prices? Cross-sectional evidence
    Irwin, S.; Sanders, D.R.
  • Price discovery and convergence in the Indian commodities market
    Iyer, V.; Pillai, A.
  • Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models
    Johansen, S.
  • Price discovery, causality and forecasting in the freight futures market
    Kavussanos, M.G.; Nomikos, N.K.
  • Does futures speculation destabilize commodity markets?
    Kim, A.
  • Financial globalization: a reappraisal
    Kose, M.A.; Prasad, E.; Rogoff, K.; Wei, S.J.
  • Hedging effectiveness of constant and time-varying hedge ratio in Indian stock and commodity futures markets
    Kumar, B.; Singh, P.; Pandey, A.
  • Shock and volatility transmission in the oil, US and Gulf equity markets
    Malik, F.; Hammoudeh, S.
  • Price discovery in thinly traded markets: cash and futures relationships in Brazilian agricultural futures markets
    Mattos, F.; Garcia, P.
  • Impact of futures trading on Indian agricultural commodity market impact of futures trading on Indian agricultural commodity market
    Mukherjee, K.N.
  • The volatility of returns from commodity futures: evidence from India
    Mukherjee, I.; Goswami, B.
  • An analysis of time-varying commodity market price discovery
    Narayan, P.K.; Sharma, S.S.
  • Higher education, real income and real investment in China: evidence from granger causality tests
    Narayan, P.K.; Smyth, R.
  • Dynamic relationships between spot and futures prices. The case of energy and gold commodities
    Nicolau, M.; Palomba, G.
  • A fractionally cointegrated VAR analysis of price discovery in commodity future markets
    Nielsen, M.O.
  • Commodity market structures, evolving governance and policy issues
    Nissanke, M.; Nissanke, M.; Mavrotas, G.
  • Testing efficiency of the London metal exchange: new evidence
    Park, J.; Lim, B.
  • The EMH and the CAPM on the Nairobi stock exchange
    Parkinson, J.M.
  • Testing for a unit root in time series regression
    Phillips, P.C.B.; Perron, P.
  • Pick your poison-fragmentation or market power? An analysis of RegNMS, high frequency trading, and securities market structure
    Pirrong, C.
  • This time is different: a panoramic view of eight centuries of financial crises
    Reinhart, C.M.; Rogoff, K.S.
  • Hedging effectiveness of European wheat futures markets: an application of multivariate GARCH models
    Revoredo-Giha, C.; Zuppiroli, M.
  • Recession effect in pricing efficiency of rubber futures: the emerging market’s experience
    Saji, T.G.
  • Price discovery efficiency of cotton futures market in India
    Samal, G.P.
  • Monthly bulletin December, 18(12)
  • Time-varying integration amongst the South asian equity markets: an empirical study
    Sehgal, S.; Pandey, P.; Deisting, F.; McMillan, D.
  • Price discovery and volatility spillover effect in Indian commodity market
    Shihabudheen, M.T.; Padhi, P.
  • The determinants of firms’ hedging policies
    Smith, C.W.; Stulz, R.M.
  • Cointegration, linear and nonlinear causality: an analysis using Indian agriculture futures contracts
    Soni, T.K.
  • The crash of 2008 and what it means: the new paradigm for financial markets
    Soros, G.
  • Lead-lag relationship between spot index and futures price of the Nikkei stock average
    Tse, Y.K.
  • Emerging commodity exchanges: from potential to success. UNCTAD/ITCD/COM/4
  • A survey of commodity risk management instruments, UNCTAD/COM/15/rev.2
  • Shock transmission and volatility spillover in stock and commodity markets: evidence from advanced and emerging markets
    Vardar, G.; Coşkun, Y.; Yelkenci, T.
  • Than critical issues facing china’s rubber industry in the era of market integration: an analysis in retrospect and prospect working paper no. 177
    Viswanathan, P.K.
  • Price discovery in wheat futures markets
    Yang, J.; Leatham, D.J.
  • Price discovery in the world sugar futures and cash markets: implications for the Dominican Republic
    Zapata, T.R.F.; Armstrong, D.
  • Investigating the price discovery and risk transfer functions in the crude oil and gasoline futures markets: Some empirical evidence
    Zhang, Y.J.; Wang, Z.Y.
  • The causes of metal price volatility. Commodities
    Bell, T.
  • Commonality in liquidity: evidence from the option market
    Cao, M.; Wei, J.Z.
  • Agricultural crisis in India: the root cause and consequences
    Dhas, A.C.
  • Anatomy of a crisis the causes and consequences of surging food prices
    Heady, D.; Fan, S.
  • Are commodity futures prices barometers of the global economy?
    Hu, C.; Xiong, W.
  • Volatility transmission between oil and LME futures
    Park, J.
  • Livelihood and employment of workers in rubber and spices plantations
    Rajasenan, D.