Title: Price discovery and volatility transmission in the spot and futures market of pepper: an empirical analysis

Authors: Asha Nadig; T. Viswanathan

Addresses: Dayananda Sagar University, Shavige Malleshwara Hills, Kumarswamy Layout, Bengaluru 560078, India ' Symbiosis Institute of Business Management, 95/1, 95/2, Hosur Road, Electronics City Phase 1, Electronic City, Bengaluru, Karnataka 560100, India

Abstract: Pepper, the 'king of spices', is one of the oldest and widely traded spices across the world over many centuries. As a commodity traded in the spot, futures and export market, global demand and supply play a crucial role in shaping pepper price and volatility. As price risks are integral to farmers and traders, forecasting successive prices will be of great help to them. The price risk can be minimised through effective hedging. The futures market provides a platform for both hedging and speculation. Hence understanding the relationship between spot and future market is essential for the traders of commodities. This paper examines the price discovery mechanism and volatility transmission between the spot and futures prices of pepper. Applying the statistical, seasonal variation and econometric models for forecasting, forecasting accuracy is tested. The Holt-Winter's model gives biased estimate of future prices. The ARIMA model is the appropriate model to forecast the price of pepper.

Keywords: forecasting; price discovery; co-integration; volatility spill over.

DOI: 10.1504/IJIE.2022.119621

International Journal of Intelligent Enterprise, 2022 Vol.9 No.1, pp.78 - 99

Received: 18 May 2018
Accepted: 14 Jan 2019
Published online: 13 Dec 2021 *

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