Int. J. of Trade and Global Markets   »   2012 Vol.5, No.1

 

 

Title: Price discovery in Indian commodity futures market: an empirical exercise

 

Authors: Kushankur Dey; Debasish Maitra

 

Addresses:
T.A.Pai Management Institute (TAPMI), Manipal 576104, Karnataka, India.
Fellow Programme in Rural Management (FPRM), H-15, Institute of Rural Management, Anand (IRMA), Post Box No. 60, Gujarat 388001, India

 

Abstract: The Indian commodity futures market is of recent introduction, albeit, it was in existence in a crude form a few centuries ago. After the opening of national level exchanges post 2002, the landscape of this market has witnessed phenomenal growth in terms of products on offer, trade volume, participation, and spatial distribution. In this paper, pepper has been selected as a commodity to explore the price discovery process through a series of tests, namely, Granger causality, co-integration, error correction with weak exogeneity, and forecast error variance decomposition. This paper sheds some light on existing methods of price discovery mechanism through some insightful inferences that unidirectional causality from futures to spot prices has been observed in the Indian pepper futures market. However, the adjustment of innovations or shocks in the futures market is relatively faster than that of the spot market.

 

Keywords: price discovery; cointegration; causality; error correction; weak exogeneity; India; commodity futures; futures markets; pepper prices; error variance decomposition.

 

DOI: 10.1504/IJTGM.2012.045578

 

Int. J. of Trade and Global Markets, 2012 Vol.5, No.1, pp.68 - 87

 

Available online: 18 Feb 2012

 

 

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