Underdeveloped spot markets and futures trading: The Soya Oil exchange in India

Bharat Ramaswami and Jatinder Bir Singh ()
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Jatinder Bir Singh: SGGS College of Commerce, New Delhi

Discussion Papers from Indian Statistical Institute, Delhi

Abstract: The limited presence of futures exchanges in developing countries where commodity markets fall short of the ideal underscore the importance of understanding the relation between spot and futures markets. The paper examines the exceptional success of the soya oil contract at the National Board of Trade (NBOT) in India. The paper asks whether the NBOT contract exhibits the fundamental features of mature futures markets in terms of its use by hedgers. If the market offers arbitrage opportunities to hedgers and if such activity is significant, then the activities of commercial firms should affect the returns to their hedging portfolio i.e., change in basis. This insight is developed into an examination of the impact of soya oil imports on the basis. Despite the lack of key market institutions such as certified warehouses and centralized spot prices, the NBOT contract compares well with mature exchanges. Soya oil imports exercise a significant impact on the basis and provide enough short-term volatility to make the contract attractive to both hedgers and speculators.

Keywords: hedging; futures markets; spot markets; soya oil (search for similar items in EconPapers)
JEL-codes: G13 Q13 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2006-03
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Related works:
Working Paper: Underdeveloped Spot Markets and Futures Trading: The Soya Oil Exchange in India (2007)
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