Authors: Kushankur Dey; A. Sivakumar
Addresses: T A Pai Management Institute (AACSB Accredited), Manipal-576104, Karnataka, India ' T A Pai Management Institute (AACSB Accredited), Manipal-576104, Karnataka, India
Abstract: Coffee futures market needs to be efficient to benefit the producers. This paper explores whether this market provides the environment of hedging. In addition, we examine informational efficiency in the futures to justify the criteria for adequacy of hedging. The study is significant as India has over five years of experience with coffee futures market in a software-enabled trading environment. We use modified Pantula principle in testing co-integration and perform weak exogeneity test to draw better inferences on efficiency. The first level analysis shows excessive basis risk with negative hedge-effectiveness. At a further level, findings seem to corroborate the results of first level analysis significantly. The paper establishes that coffee futures market does not satisfy the criteria of hedging and spot markets are efficient compared to the futures.
Keywords: hedging; informational efficiency; coffee futures; India; Indian coffee producers; co-integration; spot markets.
International Journal of Economic Policy in Emerging Economies, 2012 Vol.5 No.4, pp.318 - 341
Available online: 26 Feb 2013 *Full-text access for editors Access for subscribers Purchase this article Comment on this article