Impact of Futures Trading on Spot Markets: An Empirical Analysis of Rubber in India

Akanksha Gupta and Poornima Varma
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Akanksha Gupta: Economic Division, Fourteenth Finance Commission of India, New Delhi, India
Poornima Varma: Centre for Management in Agriculture, Indian Institute of Management, Ahmedabad, India

Eastern Economic Journal, 2016, vol. 42, issue 3, 373-386

Abstract: The present study investigates the impact of futures trading on spot markets of rubber in India. The study focuses on the price discovery role of futures, direction of volatility spillovers, and the relationship between the futures trading activity and the spot price volatility. The analysis using the Co-integration and Error Correction Model suggests that there is a stronger information flow from the futures to spot markets, indicating price discovery in futures. The results of Granger Causality tests show the existence of a bidirectional volatility spillover in the two markets and that futures trading activity is both a cause and consequence of spot volatility.

Date: 2016
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