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Regulatory reform and market efficiency: The case of Indian agricultural commodity futures markets

Sunil K. Mohanty and Sibanjan Mishra

Research in International Business and Finance, 2020, vol. 52, issue C

Abstract: We present the results of two efficiency measures that include intraday return predictability measure based on order imbalance and measures of several variance ratio tests on intraday subsamples of nine major Indian agricultural commodity futures (castor seed, cotton oil cake, rape mustard seed, soybean, refined soya oil, crude palm oil, jeera, chana, and turmeric) quoted in the National Commodity and Derivatives Exchange (NCDEX). We perform the efficiency measures on five subsamples with holding periods of 5, 10, 15, 30, and 60 min over two sample periods following the announcement of the merger between the Forward Market Commission (FMC) and Securities Exchange Board of India (SEBI). We compare results of tests of weak-form market efficiency of futures markets between two periods (pre-merger period and post-merger period). Our results confirm that Indian agricultural commodity futures markets continue to remain inefficient in the short-term during both pre-merger and post-merger periods. Based on these findings, it is likely that profitable trading strategies in the short intraday intervals will be available for traders and market participants during post-merger period. Thus, regulators must focus more on policy initiative so as to enhance market quality in order to address such inefficiencies in Indian commodity futures markets.

Keywords: Random walk hypothesis; Variance ratio tests; Commodity futures markets; Weak-form efficient market hypothesis (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ribaf.2019.101145

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