The volatility of returns from commodity futures: evidence from India

Isita Mukherjee () and Bhaskar Goswami ()
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Isita Mukherjee: The University of Burdwan

Financial Innovation, 2017, vol. 3, issue 1, 1-23

Abstract: Abstract Background This paper examines the pattern of the volatility of the daily return of select commodity futures in India and explores the extent to which the select commodity futures satisfy the Samuelson hypothesis. Methods One commodity future from each group of futures is chosen for the analysis. The select commodities are potato, gold, crude oil, and mentha oil. The data are collected from MCX India over the period 2004–2012. This study uses several econometric techniques for the analysis. The GARCH model is introduced for examining the volatility of commodity futures. One of the key contributions of the paper is the use of the β term of the GARCH model to address the Samuelson hypothesis. Result The Samuelson hypothesis, when tested by daily returns and using standard deviation as a crude measure of volatility, is supported for gold futures only, as per the value of β (the GARCH effect). The values of the rolling standard deviation, used as a measure of the trend in the volatility of daily returns, exhibits a decreasing volatility trend for potato futures and an increasing volatility trend for gold futures in all contract cycles. The result of the GARCH (1,1) model suggests the presence of persistent volatility and the prevalence of long memory for the select commodity futures, except potato futures. Conclusions The study sheds light on significant characteristics of the daily return volatility of the commodity futures under analysis. The results suggest the existence of a developed market for the gold and crude oil futures (with volatility clustering) and show that the maturity effect is only valid for the gold futures.

Keywords: Commodity futures; Daily return; Volatility; Samuelson hypothesis; GARCH (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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DOI: 10.1186/s40854-017-0066-9

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