Crude oil futures to manage the price risk of natural rubber: Empirical evidence from India

Kepulaje Abhaya Kumar, Prakash Pinto, Iqbal Thonse Hawaldar, Cristi Spulbar () and Ramona Birau
Additional contact information
Kepulaje Abhaya Kumar: Department of Business Administration, Mangalore Institute of Technology & Engineering, Moodabidri, India
Prakash Pinto: Department of Business Administration, St. Joseph Engineering College, Mangalore, India
Iqbal Thonse Hawaldar: Department of Accounting & Finance, College of Business Administration, Kingdom University, Sanad, Bahrain
Ramona Birau: Faculty of Education Science, Law and Public Administration, Constantin Brâncuși University of Târgu Jiu, Târgu Jiu, Romania

Agricultural Economics, 2021, vol. 67, issue 10, 423-434

Abstract: The trading of natural rubber derivatives in the Indian commodity exchanges was banned several times in the past. Hence, in India, the derivatives on natural rubber are not traded actively and regularly. We have examined the possibility of a forecast model and a cross hedge tool for the natural rubber price by using crude oil futures in India. Results of the Johansen cointegration test proved that there is no cointegration equation in the model; hence, there is no scope to develop long-run models or error correction models. We have developed a vector autoregressive [VAR(2)] model to forecast the rubber price, and we examined the possibility of a cross hedge for natural rubber further by using the Pearson correlation coefficient and Granger causality test. We have extended our research to a structural VAR analysis to examine the effect of crude futures and exchange rate shocks on the natural rubber price. Our results showed that there is a short-term relationship between the crude oil futures price, the exchange rates of the US dollar to the Indian rupee, the Malaysian ringgit to the Indian rupee and the Thai baht to the Indian rupee; and the natural rubber price in India. The effort of policymakers to cause the Indian rupee to appreciate against the Thai baht and Malaysian ringgit may increase the natural rubber price in India. Natural rubber traders, growers and consumers can use crude futures to hedge the price risk. The Indian Rubber Board can suggest the VAR(2) model to predict the short-run price for natural rubber.

Keywords: cointegration; cross hedge; exchange rates; oil future; vector autoregressive model (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://agricecon.agriculturejournals.cz/doi/10.17221/28/2021-AGRICECON.html (text/html)
http://agricecon.agriculturejournals.cz/doi/10.17221/28/2021-AGRICECON.pdf (application/pdf)
free of charge

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:caa:jnlage:v:67:y:2021:i:10:id:28-2021-agricecon

DOI: 10.17221/28/2021-AGRICECON

Access Statistics for this article

Agricultural Economics is currently edited by Ing. Zdeňka Náglová, Ph.D.

More articles in Agricultural Economics from Czech Academy of Agricultural Sciences
Bibliographic data for series maintained by Ivo Andrle ().