Testing price volume relationships for Indian commodity futures

Abstract

PurposeThe nature of price volume relationship in asset market has been an interesting subject in financial research as it reveals a very important aspect which has implications for market efficiency. The purpose of this paper is to examine price volume relationships in Indian commodity futures market.Design/methodology/approachThere are two competing models in price volume relationship. Mixture of distribution hypothesis, suggesting a positive contemporaneous relationship and sequential information arrival hypothesis (SIH), suggesting a positive intertemporal causal relationship. Both are tested using correlation coefficient and Granger causality test with vector auto regressive methodology.FindingsThough there exists contemporaneous correlation between volume and price change in some of the cases, but in general on the basis of the presence of Granger causality it follows that SIH is supported.Research limitations/implicationsAs only three commodities futures have been studied in this paper, this study can be extended to include more number of commodities currently being traded so as to make it more exhaustive.Practical implicationsThe research has been done with the data of MCX Gold, MCX Silver and MCX Crude. The results of causality suggest that inefficiency level is maximum in Silver which may be attributed to informational asymmetry.Originality/valueThe Indian commodity futures market is of very recent origin. Hence, very little research work has been undertaken in this space. The paper presents an assessment of the existence of informational asymmetry among the three commodity futures under the study.