Determinants of the Commodity Futures Market Performance: An Indian Perspective

Priti Dubey and Rishika Shankar

South Asia Economic Journal, 2020, vol. 21, issue 2, 239-257

Abstract: This article aims to find out interlinkages between equity and commodity markets through the channel of investors’ outlook in the equity market. The proxies used for gauging perception of investors are investor sentiment index and Advance–Decline ratio. The study also incorporates the introduction of Commodity Transaction Tax (CTT) and occurrence of National Spot Exchange Limited (NSEL) scam in the year 2013. Additionally, returns in commodity market are examined to be a function of equity returns. The empirical findings suggest that the liquidity of commodity futures is inversely related to investor sentiments in equity market, and commodity returns are also negatively related to equity returns. Therefore, equity and commodity markets are inversely related, as liquidity in both the markets reacts to the investor sentiments; contrarily, commodity returns experience a significantly negative impact from equity returns. Additionally, the results also provide evidence that investor sentiment in equity possesses the ability to predict liquidity in the commodity futures market. The study also suggests that the CTT and NSEL scam have significantly and positively affected the liquidity of the Indian commodity market.

Keywords: Advance–Decline ratio; commodity futures; commodity transaction tax; investor sentiment Index; NSEL scam (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:soueco:v:21:y:2020:i:2:p:239-257

DOI: 10.1177/1391561420970837

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