The study focuses on examining the price discovery process, short run disturbances and hedging mechanism of agricultural and metal commodities futures market for the period January 2010 to December 2018. Contango and normal backwardation have also been taken into deliberation for select commodities which are traded in MCX and NCDEX, India which is a valuable addition to the existing body of literature in derivatives market. Johansen’s co-integration, VECM, Granger causality test and OLS are employed for understanding the price discovery and constant hedging for select commodities. Further, existence contango and normal backwardation have been observed by comparing the spot and futures prices. It has been found that spot market is acting as a leader in the longer period and laggard in short run investors can be benefitted to take short run or long run investment decision.
AliJ.GuptaK. B. (2011). Efficiency in agricultural commodity futures market in India: Evidence from co- integration and causality test. Agricultural Finance Review, 71(2), 162–178.
2.
AroraM.ChandarR. (2017). Price efficiency and volatility in agri-commodity market in India: An empirical investigation. https://doi.org/10.13140/RG.2.2.21238.91208
3.
AultonA. J.EnnewC. T.RaynerA. J. (1997). Efficiency test of futures market for UK agricultural commodities. Journal of Agricultural Economics, 48(1–3), 408–424.
4.
BejaA.GoldmanM. B. (1980). On the dynamic behavior of prices in the disequilibrium. The Journal of Finance, 35(2), 235–248.
5.
BoseS. (2008). Commodity futures market in India: A study of trends in the national multi- commodity indices. Money and Finance, ICRA Bulletin, 3(3), 125–158.
6.
BoudoukhJ.RichardsonM.ShenY. J.WhitelawR. F. (2007). Do asset price reflect fundamentals? Freshly squeezed evidence from the OJ market. Journal of Financial Economics, 83(2), 397–412.
7.
ChhajedI.MehtaS. (2013). Market behavior and price discovery in Indian agriculture commodity market. International Journal of Scientific and Research Publications, 3(3), 1–4.
8.
DasJ. K.ChakrabortyG. (2015). The hedging performance of commodity futures in India: An empirical study on some agricultural commodities. International Journal of Information, Business and Management, 7(3), 162–190.
9.
DavidA. R.ShaunK. R. (2011). Do commodity futures help forecast spot prices. (IMF Working Paper 11/254). https://www.imf.org/external/pubs/ft/wp/2011/wp11254.pdf
10.
De BoyrieM. E.PavlovaI.ParhizgariA. M. (2012). Price discovery in currency markets: Evidence from three emerging markets. International Journal of Economics and Finance, 4(12), 61–75.
11.
DeyK.MaitraD. (2016). Can futures markets accommodate Indian farmers? Journal of Agri Business in Developing and Emerging Economies, 6(2), 150–172.
12.
DwyerG. P. (2015). The Johansen tests for cointegration. http://www.jerrydwyer.com/pdf/Clemson/Cointegration.pdf
13.
EdwardA. J.RaoN. T. V. (2013). Price discovery process and volatility spillover of chili spot and futures prices: Evidence from national commodity and derivative exchange ltd (NCDEX). IJEMR, 3(12), 1–23.
14.
FamaE. (1970). Efficient capital market: A review of theory and empirical work. The Journal of Finance, 25(2), 383–417.
15.
FantacciL.MarcuzzoM. C.SanfilippoA. E. (2010). Speculation in commodities: Keynes’ practical acquaintance with futures markets. Journal of the History of Economic Thought, 32(3), 397–418.
16.
FeldmanB.TillH. (2006). Backwardation and commodity futures performance: Evidence from evolving agricultural markets. Journal of Alternative Investment, Summer, 1–16
17.
FortenberyT. R.ZaptaH. O. (1997). An evaluation of price linkages between futures and cash markets for cheddar cheese. Journal of Futures Market, 17(3), 279–301.
18.
GarbadeK. D.SilberW. L. (1983). Price movements and price discovery in futures and cash markets. The Review of Economics and Statistics, 65(2), 289–297.
19.
GossB.A. (1981). The forward pricing function of the London metal exachange. Applied Economics, 13(2), 133–150.
20.
GortonG.RouwenhorstK. G. (2006). Facts and fantasies about commodity futures. Financial Analysts Journal, 62(2), 47–68.
21.
GraciaP.HudsonM. A.WallerM. L. (1988). The pricing efficiency of agricultural futures markets: An analysis of previous research results. Southern Journal of Agricultural Economics, 20(1)
22.
GrangerC. J. (1961). Investigating causal relationships by econometrics models and cross spectral methods. Econometrica, 37(9), 425–435
23.
GrossmanS. J.StiglitzJ. E. (1990). On the impossibility of internationally efficient markets. The American Economic Review, 7(3), 393–408.
24.
GrunewaldO.McNultyM. S.BiereA. W. (1993). Live cattle futures response to cattle on feed reports. American Journal of agricultural Economics, 75(1), 131–137.
25.
GuptaS.ChoudhuryH.Agarwal D.R. (2017). Hedging efficiency of Indian commodity futures: An empirical analysis. Paradigm, 21(1), 1–20.
26.
HarrisF. H.MclnishT. H.WoodR. A. (2002a). Common factor components versus information shares: A reply. Journal of Financial Markets5, 341–348.
27.
HarrisF. H.MclnishT. H.WoodR. A. (2002b). Security price adjustment across exchanges: An investigation of common factor components for Dow stocks. Journal of Financial Markets, 5, 277–308.
28.
HasbrouckJ. (1995). One security, many markets: Determining the contributions to price discovery. Journal of Finance, 50, 1175–1199.
29.
KapilS.KapilK. N. (2010). Commodity trading advisors (CTAs) for the Indian commodity market. International Journal of Emerging Markets, 5(2), 124–137.
30.
KeynesJ. (1930). A treatise on money. Macmillan.
31.
KoontzS. R.GraciaP.HodsonM. A. (1990). Dominant-satellite relationships between live cattle cash and futures market. Journal of Futures Market, 10(2), 123–136.
32.
KumarB.PandeyA. (2011). Role of Indian commodities derivatives market in hedging price risk: Estimation of constant and dynamic hedge ratio and hedging effectiveness. Bogazici Journal, 25(1), 79–121.
33.
MahdaviS.SohrabianA. (1989). The link between the rate of growth of stock prices and the rate of growth of GNP in the United States: A granger causality test. The American Economist, 35(2), 41–48.
34.
MalhotraM. (2015). Evaluating the hedging performance of oil and oilseeds futures in India. Paradigm, 19(2), 184–196.
35.
MayersR. J.ThompsonS. R. (1989). Generalized optimal hedge ratio estimation. American Journal of Agricultural Economics, 71(4), 558–868.
36.
MukherjeeI.GoswamiB. (2017). The volatility of returns from commodity futures: Evidence from India. Financial Innovation, 3(15), 1–23.
37.
MuravyevD.PearsonN. D.BroussardJ. P. (2013). Is there price discovery in equity options. Journal of Financial Economics, 107, 259–283.
38.
NargunamR.AnuradhaN. (2017). Market efficiency of gold exchange traded funds in India. Financial Innovation, 3(14), 1–18.
39.
NelsonC.PlosserC. (1982). Trends and random walks in macroeconomic time series: Some evidence and implications. Journal of Monetary Economics, 10, 130–162.
40.
OellermannC. M.BrorsenB. W.FarrisP. L. (1989). Price discovery for feeder cattle. Journal of Futures Markets, 9(2), 113–121.
41.
ParkT. H.SwitzerL. N. (1995). Time varying distributions and the optimal hedge ratios for stock index futures. Applied Financial Economics, 5(1), 131–137.
42.
RoutB. S. (2018). Performance of commodity derivatives market in India. Pondicherry University, Puducherry.
43.
RoutB. S.RaoK. C., (2017). The ConBack gimmick: A strategy for speculation. XIBA Business Review, 3(1&2), 32–41.
44.
SaranyaV. P. (2015). Volatility and price discovery process of Indian spot and futures market for non-agricultural commodities. International Journal in Management and Social Science, 3(3), 346–354.
45.
SehgalS.RajputN.DuaR. K. (2012). Price discovery in Indian agricultural commodity market. International Journal of Accounting and financial Reporting, 2(2), 31–38.
46.
SendhilR.KarA.MathurV. C.JhaG. K. (2013). Price discovery, transmission and volatility: Evidence from agricultural commodity futures. Agricultural Economics Research Review, 26(1), 41–54.
47.
SethN.SidhuA. (2018). Price discovery and volatility spillovers in Indian wheat market: An empirical analysis. IUP Journal of Applied Finance, 24(2), 5–21.
48.
ShakeelM.PurankarS. (2014). Price discovery mechanism of spot and futures market in India: A case of selected agri-commodities. International Research Journal of Business and Management, 7(8), 50–61.
49.
SinghA.SinghN. P. (2015). Testing seasonality and efficiency in chana futures market. Apeejay Business Review, 14(2), 5–15.
50.
SrinivasanP. (2011). Price discovery and volatility spillovers in Indian spot-futures commodity market. The IUP Journal of Behavioral Finance, 9(1), 70–85.
51.
TahirM.Muhammad T.J.MuhammadI. (2010). Cointegration and error correction modelling of wheat consumption in Pakistan. Humanomics, 26(3), 212–223.
52.
VaradiV. K. (2012). An evidence of speculation In Indian commodity markets. MPRA 38337. https://mpra.ub.uni-muenchen.de/38337/1/MPRA_paper_38337.pdf
