Title: Analysis of lead-lag relationship and volatility spillover: evidence from Indian agriculture commodity markets
Authors: Muneer Shaik; Abhiram Kartik Lanka; Gurmeet Singh
Addresses: IFMR Graduate School of Business, Krea University, 600018, Chennai, India ' Model Risk Management, Deloitte, 500032, Telangana, India ' IFMR Graduate School of Business, Krea University, 600018, Chennai, India
Abstract: This study examines the lead-lag relationship and volatility spillover in the Indian commodity derivatives market. The study has been conducted with ten commodities based on the availability of data and liquidity for the period of 2010 to 2020. Augmented dickey-fuller (ADF) test is used to check the stationarity of the price series. The study uses Johansen's cointegration test to check for the long-run relationship between the spot and the futures market. VECM and EGARCH(1,1) analysis is performed to examine the market efficiency, price discovery relationships, short-run relationships, and volatility spillover in Indian commodity markets. The study found efficiency in both the future and the spot market. Futures market leads spot markets for some commodities and absorbs the information shock faster and hence are more efficient and the same is verified by Granger causality. There is also evidence of bidirectional causality. The study found leverage effect, persistence effect, and volatility spillover effect for spot and futures markets.
Keywords: lead-lag; volatility spillover; agriculture commodity futures; price discovery; VECM; EGARCH.
International Journal of Bonds and Derivatives, 2021 Vol.4 No.3, pp.258 - 279
Received: 09 Feb 2021
Accepted: 26 Apr 2021
Published online: 04 Aug 2021 *