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Price discovery and volatility spillovers in futures and spot commodity markets Some Indian evidence

Price discovery and volatility spillovers in futures and spot commodity markets Some Indian evidence Purpose – The purpose of this paper is to investigate empirically the price discovery and volatility spillovers in Indian spot‐futures commodity markets. Design/methodology/approach – The study has used four futures and spot indices of Multi‐Commodity Exchange, Mumbai. The study also employs vector error correction model (VECM) and bivariate exponential Garch model (EGARCH) to analyze the price discovery and volatility spillovers in Indian spot‐futures commodity market. Findings – The VECM shows that agriculture future price index (LAGRIFP), energy future price index (LENERGYFP) and aggregate commodity index (LCOMDEXFP) effectively serve the price discovery function in the spot market implying that there is a flow of information from future to spot commodity markets but the reverse causality does not exist. There is no cointegrating relationship between metal future price index (LMETALFP) and metal spot price index (LMETALSP). Besides the bivariate EGARCH model indicates that although the innovations in one market can predict the volatility in another market, the volatility spillovers from future to the spot market are dominant in the case of LENERGY and LCOMDEX index while LAGRISP acts as a source of volatility toward the agri‐futures market. Research limitations/implications – The results are aggregate in nature. Further study at disaggregated level will provide further insights on behavior of specific commodity prices and the price discovery process. Originality/value – The paper provides useful information about the evolution and structures of futures commodity trading in India, related literature and relevant methodology concerning the hypotheses. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

Price discovery and volatility spillovers in futures and spot commodity markets Some Indian evidence

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
0972-7981
DOI
10.1108/JAMR-09-2012-0039
Publisher site
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Abstract

Purpose – The purpose of this paper is to investigate empirically the price discovery and volatility spillovers in Indian spot‐futures commodity markets. Design/methodology/approach – The study has used four futures and spot indices of Multi‐Commodity Exchange, Mumbai. The study also employs vector error correction model (VECM) and bivariate exponential Garch model (EGARCH) to analyze the price discovery and volatility spillovers in Indian spot‐futures commodity market. Findings – The VECM shows that agriculture future price index (LAGRIFP), energy future price index (LENERGYFP) and aggregate commodity index (LCOMDEXFP) effectively serve the price discovery function in the spot market implying that there is a flow of information from future to spot commodity markets but the reverse causality does not exist. There is no cointegrating relationship between metal future price index (LMETALFP) and metal spot price index (LMETALSP). Besides the bivariate EGARCH model indicates that although the innovations in one market can predict the volatility in another market, the volatility spillovers from future to the spot market are dominant in the case of LENERGY and LCOMDEX index while LAGRISP acts as a source of volatility toward the agri‐futures market. Research limitations/implications – The results are aggregate in nature. Further study at disaggregated level will provide further insights on behavior of specific commodity prices and the price discovery process. Originality/value – The paper provides useful information about the evolution and structures of futures commodity trading in India, related literature and relevant methodology concerning the hypotheses.

Journal

Journal of Advances in Management ResearchEmerald Publishing

Published: Jul 29, 2014

Keywords: India; Price discovery; Volatility spillovers; Cointegration and ECM; Multi‐Commodity Exchange (MCX)

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