Commodity Futures Market in India: A Study of Trends in the Notional Multi-Commodity Indices

Money & Finance, ICRA Bulletin, Vol. 3, No. 3, 2007

34 Pages Posted: 31 Oct 2008

Date Written: September 3, 2008

Abstract

The main purpose of the present study would be to look into some characteristics of the Indian commodity futures market in order to judge whether prices indicate efficient functioning of the market or otherwise, particularly as this market is less developed compared to the financial derivatives markets, being constrained by its chequered history with many policy reversals. Using the available notional price indices for the commodity market we find that multi-commodity indices, which have higher exposure to metals and energy products, with clear and efficient price dissemination in national and international markets, behave like the equity indices in terms of efficiency and flow of information. Both the contemporaneous futures and spot prices contribute to price discovery and the futures market can provide information for current spot prices and thus help to reduce volatility in the spot prices of the relevant commodities and provide for effective hedging of price risk. Agricultural indices on the other hand do not exhibit such features very clearly. Our results also help to build a case for opening up of parts of the Indian agricultural futures market.

Keywords: Indian commodity futures markets, price trends, lead lag realtionship of futures and spot prices

JEL Classification: C22, G14

Suggested Citation

Bose, Suchismita, Commodity Futures Market in India: A Study of Trends in the Notional Multi-Commodity Indices (September 3, 2008). Money & Finance, ICRA Bulletin, Vol. 3, No. 3, 2007, Available at SSRN: https://ssrn.com/abstract=1262742

Suchismita Bose (Contact Author)

ICRA Ltd ( email )

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