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An analysis of time to maturity and volume effects on futures returns volatility: Agricultural commodity Futures Markets

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  • Yaganti, C Hussain

Abstract

This paper analyses the volatility dynamics of commodity futures markets and investigates the Samuelson maturity effect hypothesis. Price volatility is primary concern for different stake holders in derivatives and underlying spot markets. This study attempts to examine the Samuelson maturity effect hypothesis on selected agricultural commodity futures markets. The study on price volatility has been carried out on two aspects. Samuelson hypothesis (1965) is the first study to investigate the variation in futures prices when the futures contract reaches the maturity. He propounded that volatility in the futures prices is the function of time to maturity for different contracts. In this paper, we have examined the Samuelson maturity effect hypothesis on selected agriculture commodities futures contracts. The GARCH methodology has been used to test the maturity and volume effects on futures returns volatility. This study concludes that time to maturity is insignificant and trading volume is a significant dominant in futures returns volatility on selected agricultural commodity future contracts. The findings would be useful for market participants to develop different trading strategies for risk minimization. The study also provides some suggestive conclusions for setting up margins when contracts are near to maturity.

Suggested Citation

  • Yaganti, C Hussain, 2018. "An analysis of time to maturity and volume effects on futures returns volatility: Agricultural commodity Futures Markets," Indian Journal of Agricultural Marketing, Indian Society of Agricultural Marketing, vol. 32(2).
    • Handle: RePEc:ags:injagm:399572
    DOI: 10.22004/ag.econ.399572
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    References listed on IDEAS

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    5. Verma, Ashutosh & Kumar, C.V.R.S. Vijaya, 2010. "An Examination of the Maturity Effect in the Indian Commodities Futures Market," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 23(2), July.
    6. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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