The Lead–Lag Relationship Between Futures and Spot Price—A Case of the Oil and Oilseed Contracts Traded on Indian Exchange

Suranjana Joarder and Diganta Mukherjee

Arthaniti: Journal of Economic Theory and Practice, 2021, vol. 20, issue 1, 7-33

Abstract: In India, government intervention in the agricultural derivatives market has not allowed the market to grow and become an important tool of risk management. It has always been argued that the farmers and consumers of crops in India primarily operate in the spot market, and their expectations about the future market conditions are likely to be reflected in the spot price movements. If the farmers and consumers of the crops do not participate in the derivatives market, it is not expected to work as an efficient tool of information dissemination on the underlying commodity. We analysed the role played by the futures market in the price discovery process in this article. To test whether the futures or spot market in India plays a dominant role in information dissemination, we have done a regression analysis considering the lagged futures and spot price volatility as explanatory variables. We consider the major oil and oilseed contracts traded on National Commodity and Derivatives Exchange. As the uses of many of the oilseeds are related, we have tried to analyse the interlinkages among the market for different commodities. Our results clearly show that information on relevant futures market volatilities help significantly to assess the volatility in the spot markets. This linkage can be leveraged to manage the spot market risks better. JEL: G10, G13, G14

Keywords: Agricultural commodity derivatives; lead-lag relationship; volatility spillover (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://journals.sagepub.com/doi/10.1177/0976747919842689 (text/html)

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:sae:artjou:v:20:y:2021:i:1:p:7-33

DOI: 10.1177/0976747919842689

Access Statistics for this article

More articles in Arthaniti: Journal of Economic Theory and Practice
Bibliographic data for series maintained by SAGE Publications ().