Testing of Market Efficiency and Price Discovery in Indian Commodity Derivatives Market

International Journal of Pure and Applied Mathematics, 2018

22 Pages Posted: 2 Dec 2018

See all articles by Shaik Masood

Shaik Masood

KL University

Mohammed Mujahed Ali

Madanapalle Institute of Technology & Science

Date Written: June 8, 2018

Abstract

This paper explores to test the presence of market efficiency and price discovery system in Indian commodity derivatives market. The study uses the time series techniques to test the market efficiency, long run equilibrium and short term dynamics and price discovery.the Johansen co integration test (1988) for long run relationship between spot and futures price, Vector Error Correction (VECM) Model for finding the short term dynamics in commodity prices, The Granger Causality (1969) for investigate causality between spot and futures prices, Augmented Dickey Fuller (ADF) test (Dickey and Fuller, 1979) and Philips-Parron test to check the stationarity in the prices of commodities. In the study ten commodities areselected, four agricultural commodities viz: Mentha oil, Guar Seed, Cotton and Cardamom, fournon agricultural commodities (metals) viz: Gold, Copper, Zink and Silver and the remaining two commodities from energy commodities, Crude oil and Natural gas.The remarkof study is long run market efficiency proved in only three commodities mentha oil, cotton and natural gas. The co integration reveals long term efficiency in achieving the equilibrium between the spot and futures prices The causality reveals in few non agriculture commodities achieving price discovery, those commodities has international market linkage.

Keywords: Commodity Futures Price, Spot Prices, Derivatives Market, Causality, Market Efficiency, Price Discovery

JEL Classification: C01, C12, C22, C58, C87, G13, G14

Suggested Citation

Masood, Shaik and Ali, Mohammed Mujahed, Testing of Market Efficiency and Price Discovery in Indian Commodity Derivatives Market (June 8, 2018). International Journal of Pure and Applied Mathematics, 2018. Available at SSRN: https://ssrn.com/abstract=3280861

Shaik Masood

KL University ( email )

Vaddeswaram, Guntur District
Andhra Pradesh
India
9948052907 (Phone)

Mohammed Mujahed Ali (Contact Author)

Madanapalle Institute of Technology & Science ( email )

Angallu,
Kadiri Road
Madanapalle Chittoor, Andhra Pradesh 517325
India

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