Price Discovery Mechanism and Volatility Spillover between National Agriculture Market and National Commodity and Derivatives Exchange: The Study of the Indian Agricultural Commodity Market

Mohit Garg, Shelly Singhal, Kiran Sood, Ramona Rupeika-Apoga () and Simon Grima
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Mohit Garg: Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India
Shelly Singhal: Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India
Kiran Sood: Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India
Ramona Rupeika-Apoga: Faculty of Business, Management and Economics, University of Latvia, LV-1586 Riga, Latvia
Simon Grima: Faculty of Business, Management and Economics, University of Latvia, LV-1586 Riga, Latvia

JRFM, 2023, vol. 16, issue 2, 1-22

Abstract: Agricultural commodity markets are critical to the global economy. This study investigates the price discovery mechanism, lead-lag relationship, and volatility spillover between spot prices on the National Agriculture Market (E-NAM) and futures and spot prices on the National Commodity and Derivative Exchange (NCDEX) in the Indian agricultural commodity market. The Johansen Cointegration, Vector Error Correction (VEC), Granger causality tests, and bivariate GARCH models were applied to daily data from April 2016 to December 2020 for twelve agricultural commodities traded on the E-NAM and NCDEX. We discovered the long-run relationship using the Johansen Cointegration test and concluded that the NCDEX spot and futures market is dominant in the price discovery mechanism, and the NCDEX futures and spot markets lead the E-NAM spot prices having a unidirectional or bidirectional relationship. Furthermore, the bivariate GARCH model suggested a volatility spillover from E-NAM spot prices to NCDEX futures and spot markets for most commodities, except for bajra, barley, and jeera, which have no volatility spillover. The study’s findings have important implications for various stakeholders, including policymakers, farmers, investors, traders, and others who want to reduce price risks by using information from the E-NAM market’s spot prices.

Keywords: E-NAM; commodity markets; agricultural markets; Agricultural Produce Market Committee (APMC) act; volatility spillover (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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