Authors: Tarun Soni
Addresses: National Institute of Financial Management, Faridabad, Haryana, India
Abstract: This study tests for the presence of nonlinear dependence in the rate of returns series for four Indian multi commodity exchange indices. Six different tests for detecting nonlinearity were employed and the statistics were estimated using both the asymptotic theory and the bootstrap. The analysis of results reveals that there is a consensus in favour of nonlinearity for Metal and Energy indices even after removing linear serial correlations from the data, hence, contradicting the unpredictable criterion of weak-form efficient market hypothesis. Further the results from additional BDS test on the standardised AR(P)-GARCH(1,1) residuals imply that conditional heteroskedasticity is the main source of nonlinearity in metal indices and could be captured by the ARCH-type models. On the other hand in case of energy indices results indicate non-linear dependence of an unknown form in the data. The results have important implications on the earlier work on Indian commodity derivative markets which have relied on conventional statistical techniques which may have lead to biased and highly misleading results.
Keywords: nonlinear dependence; commodity futures; commodity spot prices; India; commodity markets; commodity exchanges; nonlinearity; conditional heteroskedasticity.
International Journal of Financial Engineering and Risk Management, 2013 Vol.1 No.1, pp.73 - 89
Available online: 04 May 2013 *Full-text access for editors Access for subscribers Purchase this article Comment on this article