Is Futures Market Mitigating Price Risk: An Exploration of Wheat and Maize Market
Instability of commodity prices has always been a major concern of the producers as well as the consumers in an agriculture-dominated country like India. Farmers in a bid to avert the price risk often tend to go for distress sale and thereby reduce the potential returns. In order to cope up with this problem, futures trading has emerged as a viable option for providing a greater degree of assurance on the price front. Thus, futures markets serve as a risk -shifting function. In the present study, an attempt has been made to look into the mechanism of movement of spot and futures prices for two important food crops in Indian agriculture. The Augmented Dickey Fuller (ADF) test has been used for both the crops to check the stationarity of the time series data. Most of the series have been observed to follow the stationary pattern at the first difference. The cointegration test has been attempted to find out whether there exists a longrun relationship between spot and futures prices of various contract months for maize and wheat crops. However, there exists a short run disequilibrium between these two. It has been observed that the futures contract behave in an expected manner and there exists a mechanism for long-run equilibrium in the maize as well as wheat crops. This phenomenon of price convergence for both maize and wheat crops clearly states that the farmers are mitigating price risk as spot prices and future prices converges.
Volume (Year): 18 (2005)
Issue (Month): 2005 ()
|Contact details of provider:|| Web page: http://www.geocities.com/aeraindia/|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
- H. Holly Wang & Bingfan Ke, 2005.
"Efficiency tests of agricultural commodity futures markets in China,"
Australian Journal of Agricultural and Resource Economics,
Australian Agricultural and Resource Economics Society, vol. 49(2), pages 125-141, June.
- Wang, H. Holly & Ke, Bingfan, 2005. "Efficiency tests of agricultural commodity futures markets in China," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 49(2), June.
When requesting a correction, please mention this item's handle: RePEc:ags:aerrae:58459. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.