Domestic and International Information Linkages for Indian Commodities Market in the Pre- and Post-CTT Periods

Muneesh Kumar, Tarunika Jain Agrawal and Srishti Sehgal

Metamorphosis: A Journal of Management Research, 2017, vol. 16, issue 2, 75-91

Abstract: This article investigates the impact of commodity transaction tax, in effect from 1 July 2013, on the information linkages for the Indian commodity market. We use daily data on five sample commodities—gold, aluminium, copper, zinc, and crude oil from 1 May 2010 to 31 August 2016. MCX has been used as a reference commodity exchange for India, while we use COMEX and DGCX for gold, LME and SHFE for base metals, and NYMEX and ICE for crude oil for international comparison. Price discovery has been evaluated using static and dynamic cointegration procedures, while volatility spillover has been evaluated based on BEKK-GARCH and Diebold Yilmaz models. We find that CTT imposition has weakened the price discovery and volatility spillover process, thus reducing the price and hedging efficiency of the Indian commodities market. For gold and crude oil, the information linkages have been severely hampered, owing to their international character. For base metals, MCX takes greater time for information transmission. International information linkages seem to have been more adversely impacted, owing to lower cost competitiveness of Indian commodities market. The findings of the study are pertinent for the policymakers, commodity exchanges, and other stakeholders.

Keywords: Commodity transaction tax; price discovery; volatility spillover; cointegration; BEKK-GARCH; Diebold Yilmaz (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:sae:metjou:v:16:y:2017:i:2:p:75-91

DOI: 10.1177/0972622517737869

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