An empirical analysis of efficiency of derivative cotton contract: an ARDL approach

Sachin Kumar

International Journal of Trade and Global Markets, 2023, vol. 17, issue 2, 109-119

Abstract: This paper is an attempt to empirically test the efficiency of a derivative contract of cotton through ARDL cointegration approach. Toda Yamamoto causality test is used examine lead lag relationship in derivative and spot price of cotton. The empirical test concludes that short term as well as long-term relationship exists between a derivative contract of cotton and spot price of cotton. Convergence is also found in spot price and derivative contract in short term and long term. As derivative contract of efficient, so farmers and consumers can use the derivative contract for managing price ambiguity. Bidirectional relationship exists between a derivative contract of cotton and spot cotton. It means that spot price of cotton has impact on derivative contract of cotton and derivative contract of cotton has impact on spot price of cotton. The study has limitation that only one commodity for the limited time period is empirically tested.

Keywords: derivative; cotton; ARDL; auto regressive distributed lags; TY test; cointegration; causality. (search for similar items in EconPapers)
Date: 2023
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