Functional Effectiveness of Commodity Futures Market: A Comparative Assessment of Agricultural and Metal Commodities

Bhabani Sankar Rout, Nupur Moni Das and K. Chandrasekhara Rao

Paradigm, 2021, vol. 25, issue 1, 42-60

Abstract: 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.

Keywords: Price discovery; lead–lag affiliation; influential direction; short-run disturbance approach; contango and normal backwardation; hedging (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:sae:padigm:v:25:y:2021:i:1:p:42-60

DOI: 10.1177/09718907211023594

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