Abstract
This paper examines the relationship between spot and futures prices in the Indian commodity market from 2015-2019, considering copper as one of the base metals. In this study, the closing spot and future price data obtained from Multi commodity exchange of India are used to investigate price discovery. Various econometric tools are used to explore the long and the short-run relationship between spot and futures prices. ADF, Johansen’s and Juliesus cointegration test, Vector Error Correction Model Test, Granger causality is carried out during the empirical process. The statistical result of the study indicates that the price is first discovered in the spot market for copper during the study period. The granger causality test indicates that it is unidirectional in the short run.
Highlights
The efficient market price of the assets will adjust rapidly to new information (Fama, 1970)
This paper examines the relationship between spot and futures prices in the Indian commodity market from 2015-2019, considering copper as one of the base metals
To help better understand the price discovery process in an emerging economy, this study aims to carry out an empirical analysis on copper futures and spot prices considering four years of data from 2015-19
Summary
The efficient market price of the assets will adjust rapidly to new information (Fama, 1970). If future and spot prices are perfectly efficient, all relevant information would immediately be utilised by the players in the market to determine the price of related assets. Future prices move in tandem with the price of its underlying assets and, the market information is reflected simultaneously without any leading or lagging movement in one another (Debasish, 2009). This indicates that there is no arbitrage or speculation process (Wahab & lashgari, 1993; Kavussanos & Alexakis, 2008).
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