Abstract
The present study investigates the potential asymmetric causal relationship between the Indian agricultural commodity futures and spot prices by employing asymmetric causality test [1]. The asymmetry issue in the causal relationship is vital because the impact of a negative shock might be different than the impact of a positive shock even in a situation in which the degree of the shock is the same in absolute terms. The asymmetric causality test results indicate that futures to spot price causalities are significant in all the eleven commodities under study in both positive and negative components. But the extent of causality from future to spot market is stronger in negative components as indicated by the causal parameter. The asymmetric causality from spot to futures price is significant for only two commodities, coriander and castor seeds. Overall the results indicate that agricultural futures market in India has a powerful price discovery function in all the selected commodities, which in turn indicates the efficiency of Indian agricultural commodity futures market.
Highlights
The agriculture sector is crucial for Indian economy and has a major role in the overall socio-economic framework of India, even though its contribution to the economy has declined over the past 50 years
The objective of this paper is to investigate the potential asymmetric causal relationship between Indian agricultural futures and spot prices by employing asymmetric causality test introduced by Hatemi-J [1]
In this study, we employ the asymmetric causality tests to investigate the asymmetric causal relationship between Indian agricultural commodity futures prices and spot prices, which has never been used in the Indian context on this topic before
Summary
The agriculture sector is crucial for Indian economy and has a major role in the overall socio-economic framework of India, even though its contribution to the economy has declined over the past 50 years. It generates more than 50 percent of employment opportunities in the country and forms the resource base for a number of. Since agriculture is the livelihood of the majority of the people in rural areas (around two thirds of people in India are living in rural areas) the demand for many of the industrial products depends on the growth of agriculture sector. The influence of the agricultural sector on other sectors of the economy through backward and forward integration is enormous
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