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Efficiency of Guar Seed Futures Market in India: An Empirical Study

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  • Meenakshi Malhotra
  • Dinesh Kumar Sharma

Abstract

Domestic and export demand of Guar Seed and its derivative Guar Gum has increased phenomenally due to its application in multi-billion dollar shale energy industry in the US. To examine the performance of Guar Seed futures market, its efficiency and price discovery is tested in the present study using robust models like Johansen’s cointegration, Vector Error Correction method, Impulse Response and Variance Decomposition. Temporal relation between spot and futures prices from 2004 to 2011 studied using the above techniques indicates that both spot and futures prices observe long-run co-movement and therefore futures contracts can serve as a useful hedging instrument. In the short run, unidirectional flow of information from the futures to the spot market is observed, i.e., futures market leads the spot market for Guar Seed. Error correction is taking place in both the markets, although futures market is seen to make quicker adjustment to restore market equilibrium. But the process of adjustment to disequilibrium is slow in both the markets. This gives an indication that participation in futures market is low which makes the process of information transmission slow.

Suggested Citation

  • Meenakshi Malhotra & Dinesh Kumar Sharma, 2013. "Efficiency of Guar Seed Futures Market in India: An Empirical Study," The IUP Journal of Applied Finance, IUP Publications, vol. 19(2), pages 45-63, April.
    • Handle: RePEc:icf:icfjaf:v:19:y:2013:i:2:p:45-63
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    Cited by:

    1. Sarveshwar Kumar Inani, 2018. "Price Discovery and Efficiency of Indian Agricultural Commodity Futures Market: An Empirical Investigation," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 16(1), pages 129-154, March.
    2. Muneer Shaik & Abhiram Kartik Lanka & Gurmeet Singh, 2021. "Analysis of lead-lag relationship and volatility spillover: evidence from Indian agriculture commodity markets," International Journal of Bonds and Derivatives, Inderscience Enterprises Ltd, vol. 4(3), pages 258-279.

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