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Underdeveloped spot markets and futures trading: The Soya Oil exchange in India

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  • Bharat Ramaswami

    ()
    (Indian Statistical Institute, New Delhi)

  • Jatinder Bir Singh

    ()
    (SGGS College of Commerce, New Delhi)

Abstract

The limited presence of futures exchanges in developing countries where commodity markets fall short of the ideal underscore the importance of understanding the relation between spot and futures markets. The paper examines the exceptional success of the soya oil contract at the National Board of Trade (NBOT) in India. The paper asks whether the NBOT contract exhibits the fundamental features of mature futures markets in terms of its use by hedgers. If the market offers arbitrage opportunities to hedgers and if such activity is significant, then the activities of commercial firms should affect the returns to their hedging portfolio i.e., change in basis. This insight is developed into an examination of the impact of soya oil imports on the basis. Despite the lack of key market institutions such as certified warehouses and centralized spot prices, the NBOT contract compares well with mature exchanges. Soya oil imports exercise a significant impact on the basis and provide enough short-term volatility to make the contract attractive to both hedgers and speculators.

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Bibliographic Info

Paper provided by Indian Statistical Institute, New Delhi, India in its series Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers with number 06-03.

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Length: 35 pages
Date of creation: Mar 2006
Date of revision:
Handle: RePEc:ind:isipdp:06-03

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Related research

Keywords: hedging; futures markets; spot markets; soya oil;

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  1. Brorsen, B. Wade & Fofana, N'Zue F., 2001. "Success And Failure Of Agricultural Futures Contracts," Journal of Agribusiness, Agricultural Economics Association of Georgia, vol. 19(2).
  2. Williams, Jeffrey C., 2001. "Commodity futures and options," Handbook of Agricultural Economics, in: B. L. Gardner & G. C. Rausser (ed.), Handbook of Agricultural Economics, edition 1, volume 1, chapter 13, pages 745-816 Elsevier.
  3. Peck, Anne E & Williams, Jeffrey C, 1992. "Deliveries on Commodity Futures Contracts," The Economic Record, The Economic Society of Australia, vol. 0(0), pages 63-74, Supplemen.
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