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Internationalization: The impact of commodity futures market expansion on market quality

Author

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  • Rajvanshi, Vivek
  • Sahoo, Gouri Sankar
  • Bansal, Avijit

Abstract

We examine the impact of the Securities and Exchange Board of India’s (SEBI) September 2022 regulation on market quality that allowed Foreign Portfolio Investors (FPIs) to participate in selected commodity futures contracts. We analyze all active commodity futures contracts traded at the Multi Commodity Exchange (MCX), the leading commodity derivatives exchange in India. In this natural experiment, we implement a difference-in-differences approach and find that post-regulation liquidity in commodity futures increases significantly, with no adverse impact on volatility. The results are robust after controlling for lagged volume, contract value, time to maturity, and spot volatility. Furthermore, several placebo tests confirm the robustness of our findings.

Suggested Citation

  • Rajvanshi, Vivek & Sahoo, Gouri Sankar & Bansal, Avijit, 2025. "Internationalization: The impact of commodity futures market expansion on market quality," Pacific-Basin Finance Journal, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:pacfin:v:94:y:2025:i:c:s0927538x25002719
    DOI: 10.1016/j.pacfin.2025.102934
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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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