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Performance and Relevance of Wheat Futures Market in India – An Exploratory Analysis

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  • Sendhil, R.
  • Ramasundaram, P.

Abstract

The present study highlights the context of wheat futures trading in India and examines its performance in terms of price transmission between Indian and US futures, domestic futures and spot markets, and, extent of integration between those markets. Role of wheat futures in price stabilisation/volatility reduction and its relevance to the small scale production system in the country have also been examined. Evidence of unit root in price series and a strong integration between spot and futures markets in India were found through Johansen’s test. Despite the integration of domestic markets, US and Indian futures are not integrated in the long-run. Application of Generalized auto-regressive conditional heteroscedasticity (GARCH) model indicated a high degree of volatility in spot prices right from inception of trading and revival of trading, however it was low during the ban period. This showed that the function of price stabilisation of futures trading has not been fulfilled. Despite futures market serving as a platform for price discovery and hedging, low marketed surplus and the complexity in trading avoids farmers’ participation. On the whole, the study concludes that wheat futures are efficient in price transmission but inefficient in price stabilisation and warrants for awareness, margin money discount and aggregating farmers produce so that farmers can participate and take advantage of hedging in an uncertain situation of the farm business.

Suggested Citation

  • Sendhil, R. & Ramasundaram, P., 2014. "Performance and Relevance of Wheat Futures Market in India – An Exploratory Analysis," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 174839, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea14:174839
    DOI: 10.22004/ag.econ.174839
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    Keywords

    Crop Production/Industries; Demand and Price Analysis; International Relations/Trade; Research Methods/ Statistical Methods;
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