Price discovery and volatility spillover in agricultural commodity futures market: an empirical analysis for India
Student name: Ms Shanal Jain
Guide: Dr Poornima Varma
Year of completion: 2013
Host Organisation: DFID South Asia Research Hub, British High Commission, New Delhi
Supervisor (Host Organisation): Dr Francis Xavier Rathinam
Abstract: In this study an attempt has been made to examine the relationship between spot and future
prices. The present study examines price discovery and volatility spillovers in Indian
agricultural commodity futures markets by using Co-integration Test, Granger Causality Test
and GARCH Test. The daily price information in spot and futures markets, for a period of 9
years (2004 – 2012), for top five traded agricultural commodities have been considered for
the analysis. The Granger Causality Test has been used to study the causal relationship
between spot and future prices and assess the direction of volatility spillover in the spot and
future market. The results of the analysis suggest that futures market respond to any
deviations from long term equilibrium more than the spot market. Also, there is a
bidirectional causality between spot and futures prices for all the commodities, except for
Chana implying that price discovery occurs in both the markets simultaneously. A GARCH
analysis confirms the volatility persistence in the two markets. The Granger causality test
between price volatilities conveys that there exists a bidirectional volatility spillover in the
two markets.
