An Examination of the Maturity Effect in the Indian Commodities Futures Market
This paper has examined the Samuelsonâ€™s hypothesis which states that the price volatility increases as the contract nears its maturity. It has also examined the BCSS hypothesis which provides that negative covariance between the spot price and net cost of carry explains the maturity effect. The study has examined these hypotheses on the data for wheat and pepper futures contract traded at NCDEX from the date of listing of the contract to 31st March 2007 and the maturity effect has been examined for each contract individually. The study has indicated that maturity effect is present in around 45 per cent of the wheat and pepper contracts. Evidence supporting the BCSS hypothesis is present more strongly in the case of wheat as compared to pepper and 79 per cent of the contracts having maturity effect have depicted negative covariance in the case of wheat. Thus, it can be concluded that maturity effect is present and it is explained to a large extent by the negative co-variance between spot price and net carry cost. The study has observed that there is further scope for research in this area in relation to other agricultural commodities and also metals. Further studies can also be undertaken to find the informational efficiency and the reaction of informational flow to identify the reasons for the presence or absence of maturity effect.
Volume (Year): 23 (2010)
Issue (Month): 2 ()
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