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Efficiency of price risk management - the case of futures markets for metals and energy in India

Author

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  • M. Ajoy Kumar
  • C. Harshini
  • Sadath A. Ahamed
  • Shalini V. Raj

Abstract

Commodity derivatives markets are meant for managing the price risk arising from fluctuations in commodity prices. After many decades of stunted growth, the commodity derivatives markets in India became active in early 2000. The current study aims to evaluate the performance of futures markets or metals and energy in India. Eight commodities from metals and energy are considered for the analysis. Daily prices of these commodities in the spot market and futures markets are collected for a period of two years. The hedging effectiveness is evaluated using the percentage reduction the futures markets can provide as compared to the volatility in the spot market. The findings of the study reveal that the futures markets in India are effective in price risk management. Energy and base metal markets are relatively better than the precious metals markets in terms of hedge effectiveness.

Suggested Citation

  • M. Ajoy Kumar & C. Harshini & Sadath A. Ahamed & Shalini V. Raj, 2024. "Efficiency of price risk management - the case of futures markets for metals and energy in India," International Journal of Business and Systems Research, Inderscience Enterprises Ltd, vol. 18(3), pages 295-305.
    • Handle: RePEc:ids:ijbsre:v:18:y:2024:i:3:p:295-305
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