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Price Discovery and Volatility Spillovers in Indian Spot-Futures Commodity Market

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  • P., Srinivasan

Abstract

The present paper examines the price discovery process and volatility spillovers in Indian spot-futures commodity markets through Johansen cointegration, Vector Error Correction Model (VECM) and the bivariate EGARCH model. The study uses four futures and spot indices of the Multi Commodity Exchange of India (MCX), representing relevant sectors like agriculture (MCXAGRI), energy (MCXENERGY), metal (MCXMETAL), and the composite index of metals, energy and agrocommodities (MCXCOMDEX). Johansen cointegration test confirms the presence of long-term equilibrium relationships between the futures price and its underlying spot price of the commodity markets.The VECM shows that commodity spot markets of MCXCOMDEX, MCXAGRI, MCXENERGY and MCXMETAL play a dominant role and serve as effective price discovery vehicle, implying that there is a flow of information from spot to futures commodity markets. Besides, the bivariate EGARCH model indicates that although bidirectional volatility spillover persists, the volatility spillovers from spot to the futures market are dominant in case of all MCX commodity markets.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 47412.

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Date of creation: 17 May 2011
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Publication status: Published in The IUP Journal of Behavioral Finance 1.9(2012): pp. 70-85
Handle: RePEc:pra:mprapa:47412

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Keywords: Price Discovery; Volatility Spillover; VECM; Bivariate GARCH; Commodity Market;

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