Price Discovery and Market Efficiency Revisited: Anecdotes from Indian Pepper Futures Markets

38 Pages Posted: 21 Jun 2011

See all articles by Kushankur Dey

Kushankur Dey

Xavier University, Bhubaneswar (XUB)

Debasish Maitra

Institute of Rural Management, Anand

Shiladitya Roy

Institute of Rural Management, Anand

Date Written: June 19, 2011

Abstract

We have taken pepper as a commodity to explore the co-integrating vectors, nature/direction of causality, and subsequently, we try to model volatility spillover in Indian pepper futures and spot markets employing Johansen‟s co-integration, VECM, Granger causality and variance decomposition tests. We draw inferences from the study that unidirectional causality has been observed in case of pepper futures market. However, the adjustment of innovations or shocks in futures market is relatively faster than that of spot markets. For volatility modelling, we have employed models with their specifications, namely, EGARCH (2,2), EGARCH (3,3), MGARCH (Diagonal VECH and BEKK) for both pepper‟s spot and futures return-series. Study reveals that unidirectional spillover has been identified under EGARCH (2, 2) model and results obtained through EGARCH (3,3) model are not impressive. News impact curve depicts the steeper movement on the logarithmic conditional variance of futures and spot-return series, which is due to positive shocks rather than that of negative shocks. Conditional correlation seems to be dynamic in nature and the correlation between spot and futures returns of pepper has been witnessed the temporal changes.

Suggested Citation

Dey, Kushankur and Maitra, Debasish and Roy, Shiladitya, Price Discovery and Market Efficiency Revisited: Anecdotes from Indian Pepper Futures Markets (June 19, 2011). Society of Interdisciplinary Business Research (SIBR) 2011 Conference on Interdisciplinary Business Research, Available at SSRN: https://ssrn.com/abstract=1867850 or http://dx.doi.org/10.2139/ssrn.1867850

Kushankur Dey (Contact Author)

Xavier University, Bhubaneswar (XUB) ( email )

XIMB Campus,
Xavier Square
Bhubaneswar, Odissa 751013
India

Debasish Maitra

Institute of Rural Management, Anand ( email )

Anand - 388 001
India

Shiladitya Roy

Institute of Rural Management, Anand ( email )

Anand - 388 001
India

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