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Price discovery in Indian commodity futures market: an empirical exercise

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  • Kushankur Dey
  • Debasish Maitra
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    Abstract

    The Indian commodity futures market is of recent introduction, albeit, it was in existence in a crude form a few centuries ago. After the opening of national level exchanges post 2002, the landscape of this market has witnessed phenomenal growth in terms of products on offer, trade volume, participation, and spatial distribution. In this paper, pepper has been selected as a commodity to explore the price discovery process through a series of tests, namely, Granger causality, co-integration, error correction with weak exogeneity, and forecast error variance decomposition. This paper sheds some light on existing methods of price discovery mechanism through some insightful inferences that unidirectional causality from futures to spot prices has been observed in the Indian pepper futures market. However, the adjustment of innovations or shocks in the futures market is relatively faster than that of the spot market.

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    Bibliographic Info

    Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Trade and Global Markets.

    Volume (Year): 5 (2012)
    Issue (Month): 1 ()
    Pages: 68-87

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    Handle: RePEc:ids:ijtrgm:v:5:y:2012:i:1:p:68-87

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    Web page: http://www.inderscience.com/browse/index.php?journalID=130

    Related research

    Keywords: price discovery; cointegration; causality; error correction; weak exogeneity; India; commodity futures; futures markets; pepper prices; error variance decomposition.;

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