Authors: Ullas Rao; Vincent Charles
Addresses: Edinburgh Business School, Heriot-Watt University, Dubai Campus, P.O. Box 38103, Dubai Knowledge Park, Blocks 5 and 14, Dubai, UAE ' The University of Buckingham, Hunter Street, Buckingham, MK18-1EG, UK
Abstract: In this paper, we examine the efficiency of commodity markets in India by resorting to a rigorous econometric model, namely the cost-of-carry model. By underscoring the need to establish a relationship between the futures and spot markets (given that they depict a time-series behaviour), the proposed model is better positioned to perform the empirical examination of market efficiency when compared to alternative models (such as the variance-ratio test, Jarque-Bera test, and runs test, among others) that have traditionally relied upon the observed behaviour of spot prices alone to achieve the set objective. A review of the existing literature points towards a lack of studies that use statistically robust models, such as cointegration regression, to assess the efficiency of commodity markets in emerging economies. This is particularly true for India, where prices of commodities with their associated impact on inflation always posit a politically sensitive scenario.
Keywords: commodity markets; market efficiency; cointegration regression; cost-of-carry; India.
International Journal of Banking, Accounting and Finance, 2021 Vol.12 No.1, pp.1 - 15
Accepted: 30 Aug 2020
Published online: 09 Dec 2020 *