Price Discovery and Volatility Spillovers in Indian Spot-Futures Commodity Market
The present paper examines the price discovery process and volatility spillovers in Indian spot-futures commodity markets through Johansen cointegration, Vector Error Correction Model (VECM) and the bivariate EGARCH model. The study uses four futures and spot indices of the Multi Commodity Exchange of India (MCX), representing relevant sectors like agriculture (MCXAGRI), energy (MCXENERGY), metal (MCXMETAL), and the composite index of metals, energy and agrocommodities (MCXCOMDEX). Johansen cointegration test confirms the presence of long-term equilibrium relationships between the futures price and its underlying spot price of the commodity markets.The VECM shows that commodity spot markets of MCXCOMDEX, MCXAGRI, MCXENERGY and MCXMETAL play a dominant role and serve as effective price discovery vehicle, implying that there is a flow of information from spot to futures commodity markets. Besides, the bivariate EGARCH model indicates that although bidirectional volatility spillover persists, the volatility spillovers from spot to the futures market are dominant in case of all MCX commodity markets.
|Date of creation:||17 May 2011|
|Date of revision:|
|Publication status:||Published in The IUP Journal of Behavioral Finance 1.9(2012): pp. 70-85|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lee, Tae-Hwy & Tse, Yiuman, 1996. "Cointegration tests with conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 73(2), pages 401-410, August.
- Chan, Kalok & Chan, K C & Karolyi, G Andrew, 1991. "Intraday Volatility in the Stock Index and Stock Index Futures Markets," Review of Financial Studies, Society for Financial Studies, vol. 4(4), pages 657-84.
- Vishwanathan Iyer & Archana Pillai, 2010. "Price discovery and convergence in the Indian commodities market," Indian Growth and Development Review, Emerald Group Publishing, vol. 3(1), pages 53-61, April.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Susmel, Raul & Engle, Robert F., 1994. "Hourly volatility spillovers between international equity markets," Journal of International Money and Finance, Elsevier, vol. 13(1), pages 3-25, February.
- Bollerslev, Tim, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
Journal of Econometrics,
Elsevier, vol. 31(3), pages 307-327, April.
- Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Zapata, T. Randall Fortenbery & Armstrong, Delroy, 2005. "Price Discovery in the World Sugar Futures and Cash Markets: Implications for the Domincan Republic," Staff Paper Series 469, University of Wisconsin, Agricultural and Applied Economics.
- Watkins, Clinton & McAleer, Michael, 2002. "Cointegration analysis of metals futures," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 59(1), pages 207-221.
- Angelos Kanas, 2000.
"Volatility Spillovers Between Stock Returns and Exchange Rate Changes: International Evidence,"
Journal of Business Finance & Accounting,
Wiley Blackwell, vol. 27(3-4), pages 447-467.
- Angelos Kanas, 2000. "Volatility Spillovers Between Stock Returns and Exchange Rate Changes: International Evidence," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 27(3&4), pages 447-467.
- Cheung, Yin-Wong & Lai, Kon S, 1993. "Finite-Sample Sizes of Johansen's Likelihood Ration Tests for Conintegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 55(3), pages 313-28, August.
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Gonzalo, Jesus, 1994. "Five alternative methods of estimating long-run equilibrium relationships," Journal of Econometrics, Elsevier, vol. 60(1-2), pages 203-233.
- Booth, G. Geoffrey & Martikainen, Teppo & Tse, Yiuman, 1997. "Price and volatility spillovers in Scandinavian stock markets," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 811-823, June.
- Ding, Zhuanxin & Granger, Clive W. J. & Engle, Robert F., 1993. "A long memory property of stock market returns and a new model," Journal of Empirical Finance, Elsevier, vol. 1(1), pages 83-106, June.
- Robert F. Engle & Victor K. Ng, 1991.
"Measuring and Testing the Impact of News on Volatility,"
NBER Working Papers
3681, National Bureau of Economic Research, Inc.
- Engle, Robert F & Ng, Victor K, 1993. " Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-78, December.
- Assoé, K., 2001. "Volatility Spillovers between Foreign Exchange and Emerging Stock Markets," Papers 2001-04, Ecole des Hautes Etudes Commerciales de Montreal-.
- Granger, Clive W J, 1986. "Developments in the Study of Cointegrated Economic Variables," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 213-28, August.
- Theodossiou, Panayiotis & Lee, Unro, 1993.
"Mean and Volatility Spillovers across Major National Stock Markets: Further Empirical Evidence,"
Journal of Financial Research,
Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 337-50, Winter.
- Panayiotis Theodossiou & Unro Lee, 1993. "Mean And Volatility Spillovers Across Major National Stock Markets: Further Empirical Evidence," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(4), pages 337-350, December.
- Chan, Kalok, 1992. "A Further Analysis of the Lead-Lag Relationship between the Cash Market and Stock Index Futures Market," Review of Financial Studies, Society for Financial Studies, vol. 5(1), pages 123-52.
- Zhong, Maosen & Darrat, Ali F. & Otero, Rafael, 2004. "Price discovery and volatility spillovers in index futures markets: Some evidence from Mexico," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 3037-3054, December.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:47412. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.