Efficiency and Futures Trading-Price Nexus in Indian Commodity Futures Markets

Pravakar Sahoo and Rajiv Kumar
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Rajiv Kumar: Rajiv Kumar is a senior fellow and Director & Chief Executive, Indian Council for Research on International Economic Relations (ICRIER), India Habitat Center, Lodhi Road, New Delhi 110 003, India. E-mail: rkumar@icrier.res.in.

Global Business Review, 2009, vol. 10, issue 2, 187-201

Abstract: Trading in commodity derivatives on exchange platforms is an instrument to achieve price discovery, better price risk management, besides helping macroeconomy with better resource allocation. Though the volume of commodity futures trade increased exponentially after the withdrawal of prohibition in 2003, the functioning of futures markets came under scrutiny during 2006–07 due to price rise and the government has proposed to impose transaction tax by 0.017 per cent on trading volume in the 2008–09 budget. In this context, we examine the efficiency and futures trading-price nexus for five top selected commodities namely gold, copper, petroleum crude, soya oil, and chana (chickpea) in commodity futures markets in India. Our results suggest that the commodity futures market is efficient for all five commodities. Further, we do not have sufficient evidence to support that futures market leads to higher inflation.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:sae:globus:v:10:y:2009:i:2:p:187-201

DOI: 10.1177/097215090901000204

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