Bullion futures effect on spot prices in India

S. Kirithiga, G. Naresh and S. Thiyagarajan

International Journal of Business Excellence, 2018, vol. 14, issue 3, 319-338

Abstract: Traditionally, investment in gold and silver had been considered as a safer investment, however in the recent year, investments in these bullion assets increases with the increase in risk factors. The price, return and the volatility factors quite often decides the investment in any asset. The risk of any investment asset is quantified by its volatility. High volatility risks can be effectively managed by exchange-traded derivatives and the bullion futures contracts are available in various sizes to cater to the needs of different stakeholders dealing with bullions. The study seeks to determine the role of volatility in determining the bullion prices for which the daily spot and futures prices of all available gold and silver contracts were collected from multi-commodity exchange (MCX) over a period of past ten years from 2006 to 2015. Volatility measures the errors made while modelling returns which can be captured by applying tools such as autoregressive conditional heteroskedasticity (ARCH) and generalised autoregressive conditional heteroskedasticity (GARCH). The analysis shows that previous day's return information influences today's return volatility in all sizes of contracts for both gold and silver. Thus, the study concludes that though commodity spot prices gets information from futures price there was no much influence of volatility information in between them.

Keywords: derivatives market; bullion futures; ARCH model; volatility; risk management; India. (search for similar items in EconPapers)
Date: 2018
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