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International Linkages of Agri-Processed and Energy commodities traded in India

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  • Sinha, Pankaj
  • Mathur, Kritika

Abstract

The current study focuses on the linkages in agri-processed (soy oil and crude palm oil) and energy commodities (natural gas and crude oil) traded on commodity exchanges of India (NCDEX; MCX) and their corresponding international commodity exchanges(Chicago Board of Trade; Bursa Malaysia Derivative Exchange; New York Mercantile Exchange). This paper examines the linkages in futures price, return and volatility of a commodity across commodity exchanges with the help of three models – (a) Price – Co-integration methodology and Error Correction Mechanism Model (b) Return and Volatility – Modified GARCH model (c) Return and Volatility – ARMA-GARCH in mean model (Innovations Model). The study indicates that there are strong linkages in price, return and volatility of futures contracts traded across commodity exchanges of India and their corresponding international commodity exchanges. Given the level of linkages, the study argues against the imposition of Commodity Transaction Tax (CTT) on sellers at the time of trading in agri-processed and energy commodities. The tax would lead to lower trading volumes thereby defeating the purpose of price discovery via commodity exchanges.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 50214.

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Date of creation: 28 Jun 2013
Date of revision: 26 Sep 2013
Handle: RePEc:pra:mprapa:50214

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Keywords: Futures; Commodity Transaction Tax; GARCH; Crude oil;

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  1. Lin, Sharon Xiaowen & Tamvakis, Michael N., 2001. "Spillover effects in energy futures markets," Energy Economics, Elsevier, vol. 23(1), pages 43-56, January.
  2. Michael T. Chng, 2010. "Comparing Different Economic Linkages Among Commodity Futures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(9-10), pages 1348-1389, November/.
  3. Renhai Hua & Baizhu Chen, 2007. "International linkages of the Chinese futures markets," Applied Financial Economics, Taylor & Francis Journals, vol. 17(16), pages 1275-1287.
  4. Baur, Dirk & Jung, Robert C., 2006. "Return and volatility linkages between the US and the German stock market," Journal of International Money and Finance, Elsevier, vol. 25(4), pages 598-613, June.
  5. Kao, Chung-Wei & Wan, Jer-Yuh, 2009. "Information transmission and market interactions across the Atlantic -- an empirical study on the natural gas market," Energy Economics, Elsevier, vol. 31(1), pages 152-161, January.
  6. Chng, Michael T., 2009. "Economic linkages across commodity futures: Hedging and trading implications," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 958-970, May.
  7. Fung, Hung-Gay & Tse, Yiuman & Yau, Jot & Zhao, Lin, 2013. "A leader of the world commodity futures markets in the making? The case of China's commodity futures," International Review of Financial Analysis, Elsevier, vol. 27(C), pages 103-114.
  8. Ramaprasad Bhar & Shigeyuki Hamori, 2006. "Linkages among agricultural commodity futures prices: some further evidence from Tokyo," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 535-539.
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