Whether commodity futures market in agriculture is efficient in price discovery? - An econometric analysis

R. Salvadi Easwaran and P. Ramasundaram

Agricultural Economics Research Review, 2008, vol. 21, issue Conference

Abstract: In any agriculture-dominated economy, like India, farmers face not only yield risk but price risk as well. Commodity futures and derivatives have a crucial role to play in the price risk management process, especially in agriculture. The present study is an investigation into the futures markets in agricultural commodities in India. The statistical analysis of data on price discovery in a sample of four agricultural commodities traded in futures exchanges have indicated that price discovery does not occur in agricultural commodity futures market. The econometric analysis of the relationship between price return, volume, market depth and volatility has shown that the market volume and depth are not significantly influenced by the return and volatility of futures as well as spot markets. The Bartlett’s test statistic has been found insignificant in both the exchanges, signifying that the futures and spot markets are not integrated. The exchange-specific problems like thin volume and low market depth, infrequent trading, lack of effective participation of trading members, non-awareness of futures market among farmers, no well-developed spot market in the vicinity of futures market, poor physical delivery, absence of a well-developed grading and standardization system and market imperfections have been found as the major deficiencies retarding the growth of futures market. The future of futures market in respect of agricultural commodities in India, calls for a more focused and pragmatic approach from the government. The Forward Markets Commission and SEBI have a greater role in addressing all the institutional and policy level constraints so as to make the agricultural commodity futures and derivatives a meaningful, purposeful and vibrant segment for price risk management in the Indian agriculture.

Keywords: Agricultural; Finance (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Downloads: (external link)
https://ageconsearch.umn.edu/record/47883/files/4-Salvadi.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:aerrae:47883

DOI: 10.22004/ag.econ.47883

Access Statistics for this article

More articles in Agricultural Economics Research Review from Agricultural Economics Research Association (India) Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().