International Linkages of Agri-Processed and Energy commodities traded in India

Pankaj Sinha and Kritika Mathur

MPRA Paper from University Library of Munich, Germany

Abstract: The current study focuses on the linkages in agri-processed (soy oil and crude palm oil) and energy commodities (natural gas and crude oil) traded on commodity exchanges of India (NCDEX; MCX) and their corresponding international commodity exchanges(Chicago Board of Trade; Bursa Malaysia Derivative Exchange; New York Mercantile Exchange). This paper examines the linkages in futures price, return and volatility of a commodity across commodity exchanges with the help of three models – (a) Price – Co-integration methodology and Error Correction Mechanism Model (b) Return and Volatility – Modified GARCH model (c) Return and Volatility – ARMA-GARCH in mean model (Innovations Model). The study indicates that there are strong linkages in price, return and volatility of futures contracts traded across commodity exchanges of India and their corresponding international commodity exchanges. Given the level of linkages, the study argues against the imposition of Commodity Transaction Tax (CTT) on sellers at the time of trading in agri-processed and energy commodities. The tax would lead to lower trading volumes thereby defeating the purpose of price discovery via commodity exchanges.

Keywords: Futures; Commodity Transaction Tax; GARCH; Crude oil (search for similar items in EconPapers)
JEL-codes: G13 G18 H2 (search for similar items in EconPapers)
Date: 2013-06-28, Revised 2013-09-26
New Economics Papers: this item is included in nep-agr and nep-sea
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