Abstract
This study examines the process of information transmission in futures prices of bullion (gold and silver) and metals (aluminum, copper, and zinc) between India, represented by MCX, and its global counterparts trading platforms, such as COMEX, LME, and SHFE, for the period of 2005 to 2012. Structural breaks are identified for all sample series, which capture the impact of the recent economic crisis on these commodity markets. The price discovery results confirm that there is a long-term equilibrium relationship among the futures prices of examined trading platforms in each commodity series, with the exception of aluminum. The MGARCH results of volatility spillovers indicate that, in the case of bullion, MCX seems to be more dominant than COMEX, implying that it is no longer a satellite market, while in case of metals, LME seems to play the dominant role followed by MCX and SHFE. The research contributes to the commodity market literature for emerging economies.
Highlights
A large number of studies have examined the process of information transmission by analyzing the price discovery and volatility spillovers for both mature and emerging commodity markets
This study examines the process of information transmission in futures prices of bullion and metals between India, represented by Multi-Commodity Exchange (MCX), and its global counterparts trading platforms, such as Commodity Exchange Inc. (COMEX), London Metal Exchange (LME), and Shanghai Futures Exchange (SHFE), for the period of 2005 to 2012
The MGARCH results of volatility spillovers indicate that, in the case of bullion, MCX seems to be more dominant than COMEX, implying that it is no longer a satellite market, while in case of metals, LME seems to play the dominant role followed by MCX and SHFE
Summary
A large number of studies have examined the process of information transmission by analyzing the price discovery and volatility spillovers for both mature and emerging commodity markets (see Ross, 1989; Tse, 1998; Thomas and Karande, 2001; Chan et al 2004; Lee et al 2009; Hua and Chen. 2007; Ge et al 2008; Fung et al 2010; Dey and Maitra, 2011; Du et al 2011; Liu and An, 2011; Kumar and Pandey, 2011). The study is motivated by the fact that globally, due to strong demand for bullion and metals in emerging economies owing to their high growth prospect, many of these economies have started setting up their own commodity exchanges, and, gradually, their share in total trade has been increasing consistently. In this light, the two most promising economies are India and China, whose commodity exchanges have recorded spectacular growth in recent years, and in some commodities their trading activity is enormously large vis-à-vis their counterparts, making them two of the strongest trading platforms in the world. The economy is seeing one of the largest commodity markets augmented by high agricultural growth and increased demand for metals, bullion, and energy products for industrial and domestic purposes
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