Time Series Analysis of Spot and Future Commodity Market in India During Covid – 19

The present article is an attempt to empirically investigate the long-term market efficiency and price discovery in Indian commodity futures market. The study has been conducted with eight commodities which include two agricultural commodities, two industrial commodities, two precious metal and two energy commodities. Sophisticated statistical methods like restricted cointegration and vector error correction model (VECM) are used to analyse the spot and futures prices time series. Restricted cointegration test shows that near-month futures prices for all the commodities are cointegrated with the spot prices but futures prices of all the commodities are inefficient to predict the future spot price. Indian commodity futures market evidenced as the thinly traded market (Kumar & Pandey, 2013, Journal of Indian Business Research, 5(2), 101–121) rejects the null hypothesis of efficiency and unbiasedness for all the eight commodities which reconfirms the result of Fortenbery and Zapata (1997, Journal of Futures Markets, 17(3), 279–301). The presence of short-term biases in the Indian futures market is evidenced in the results of VECM model which indicates the presence of informational efficiency. The statistically significant value of past prices of spot and futures confirm the short-term inefficiency and biasedness. The significant value of error correction term (ECT) of futures prices suggests that commodity futures are the most important indicator of commodity price movements. The important implication of the results is for market traders. They can use the futures prices to discover the new equilibrium and earn profits by transmitting it to the spot market. The better understanding of the interconnectedness of these market would be useful for policymakers who try to establish stability in the financial markets.

The present paper examined the price discovery and volatility spillovers in pre and post-crisis (global financial crisis and European sovereign debt crisis) periods of spot and futures energy markets in India from January 1, 2007 – December 31, 2018, with the help of closing price series listed on the Multi Commodity Exchange Limited (MCX) for both spot and futures crude oil and natural gas markets. The data were examined using Johansen cointegration test, vector error correction (VEC) model, autoregressive distributed lag (ARDL) model, and Glosten-Jagannathan-Runkle generalized autoregressive conditional heteroscedasticity (GJR-GARCH) model to measure the price discovery and volatility spillovers. For price discovery, most of the sample cases had a long-run equilibrium relationship between their spot and futures prices, and the futures (spot) market led the spot (futures) market in the long-run in most sample periods (post-ESDC period). In case of volatility spillover, most of the results concluded the dominance of the futures market over the spot market except crude oil in the post-ESDC period. All these factors made the futures market more efficient and cost-competitive in terms of price discovery. So, it can be concluded that the market participants may depend on the futures market’s price changes for their investment and trading decisions. The results of during and post-crisis periods may be helpful for the current investors for modification of their optimum portfolio. Investors and policy makers may draw meaningful conclusions and become prepared for the next crisis period.

This paper examines the role of Forward Markets Commission (FMC) in Indian Commodity Markets. The Results show important developments of Forward Markets Commission. Commodity futures and derivatives have a crucial role to play in the price risk management process, especially in agriculture sector. The significance of commodity derivatives has increased in the current scenario. India has long history of trade in commodity derivatives. Organized commodity derivatives in India started as early as 1875, barely about a decade after they started in Chicago. Since 2003, when commodity futures’ trading was permitted, commodity futures market in India has experienced an unprecedented boom in terms of the number of modern exchanges, number of commodities allowed for derivatives trading as well as the value of futures trading in commodities. There are 6 national and 16 regional commodity exchanges recognized and regulated by the FMC. Different types of commodities such as agricultural; bullion, plantation, energy etc. is traded on commodity exchanges in the country. So considering these points an attempt has been made to know the regulatory framework of commodity futures and derivatives market in India and various developments in Indian commodity market and commodity exchanges. This study is an attempt to investigate the performance of Forward Markets Commission in India and its role in Indian commodity market.

Purpose: This paper aims to investigate the price discovery process, persistence of volatility and spillover of volatility in commodity futures and spot market in India. Methodology: In this paper, commodities namely, mentha oil, cotton, gold and aluminium have been selected to explore the process of price discovery, volatility persistence and spillover of volatility using cointegration test, vector error correction (VECM), granger causality and GARCH model. Findings: The results of VECM suggest that price discovery takes place in futures market in case of all commodities except for mentha oil where price discovery occurs in spot market. The Block Exogeneity Wald test (granger causality) results also show that futures market has stronger ability to predict the spot prices. The results of GARCH model indicate that volatility is persistent for all commodities except mentha oil futures return. In the support of VECM and granger causality test results, GARCH model results also indicate that volatility spillovers from futures return to spot return for all selected commodities except cotton where volatility spillovers from spot return to futures return. Practical Implications: The findings of this study significantly contribute to the Indian commodity derivatives market literature and useful for future researchers, investors, hedgers, economists and policy makers. Originality: There are very few studies that have examined the price discovery process and spillover of volatility using combination of both agricultural and nonagricultural commodities in India.

The present study documents the finding of a survey of brokers’ perception pertaining to the recently introduced commodity derivatives market in India. The survey results show the brokers’ assessment about trading/marketing activities and their perception of the benefits and concerns about commodity derivatives. It also throw some light on the perception of brokers about the efficiency of Indian commodity derivatives in performing the functions of price discovery, hedging effectiveness and volatility dynamics. The survey results show that high net worth individual are contributing significantly in the trade volume of commodity derivatives. Interestingly, retail investors are also emerged as the significant contributor in total turnover of brokers. Survey results exhibit that price discovery and hedging effectiveness functions are well performed by all the commodity futures except the energy commodities futures. Energy commodities, being the most volatile commodities, are perceived as having less hedging effectiveness as compared to others. Brokers are assenting on the high to moderate impact of open interest, volume and time to maturity on the volatility of the commodity futures derivatives.

Introducing more speculators into the market for a given commodity leads to improved risk sharing but can also change the informational content of prices. This inflicts an externality on those traders already in the market, whose ability to make inferences based on current prices will be aff ected. In some cases, the externality is negative: the entry of new s peculators lowers the informativeness of the price to existing trader s. The net result can be one of price destabilization and welfare red uction. This is true even when all agents are rational, risk-averse c ompetitors who make the best possible use of their available informat ion. Copyright 1987 by University of Chicago Press.

Derivatives market help in reducing volatility in spot markets due to increase in the information flow from future market to the spot market. Also, it attracts the speculators to the spot market and take alternate positions at lower cost. This helps in reducing volatility in spot markets. Derivative markets perform many functions like Price Discovery, reducing volatility spillover, hedging and risk management. The objective of the study was identified to study the causal or lead and lag relationship and analyse Cause & Effect Lag Relationship between Spot & Future Returns of sampled Agro commodities. Ten agricultural commodities frequently traded on NCDEX i.e. Mustard Seed, Refined Soy Oil, Crude Sunflower Oil, Refined Castor Oil, Groundnut, Raw Yellow Peas, Moong, Bajra, Paddy (Basmati) & Maize Feed were considered in the study. Sampled commodities were selected based on March, 2018 observed trading volumes from two major commodity groups of NCDEX, namely Cereals & Spices and Oil & Oil seeds and duration of the study was for 6 years i.e. April 2018 to August 2024. Vector Auto Regression (VAR) Model: VAR model is used to study the causal or lead and lag relationship between spot and future market of the commodities. The Block exogeneity Granger’s causality test along with impulse response function and variance decomposition variance estimates were analyzed. The causality method is applied to the different selected commodities. During the period of study Spot and future prices of all the agro commodities showed fluctuations. Mean spot prices were greater than mean future prices for all agri-commodities except Mustard Seed, Groundnut and Paddy (Basmati) during the period of study. ADF Unit root test showed that time series was not stationary at level 0. However, the time series became stationary at first log transformation for all 10 commodities. There exists high positive significant correlation between the Agri spot and future commodity prices which showed that during the period of study they were moving in the same direction. There exists Bi-directional causality between spot and future market returns in 5 commodities, namely, Mustard Seed, Refined Soy Oil, Refined Castor Oil, Crude Sunflower Oil and Raw Yellow Peas. Uni-directional causality from spot to futures market was observed in case of Groundnut, Bajra, Paddy (Basmati) and Maize Feed. Upon going through the research process, it was observed clearly that there is a great scope for improvement, both at policy and implementation levels for the overall development of Commodity Derivative markets in India. Be it the policy makers, traders, farmers or investors, all of them need to participate and work towards a system which is not only robust for them but for the Economy as well.

Volatility or risk spillover from one market or asset to another market or asset is an important drawback in commodity derivatives market. As we know, in a competitive environment information transmission is a key factor in price discovery. Similarly, risk also transmits from one segment to another segment. Derivatives market helped in reducing volatility in spot markets due to increase in the information flow from future market to the spot market. Also, it attracts the speculators to the spot market and take alternate positions at lower cost. This helps in reducing volatility in spot markets. Derivative markets perform many functions like Price Discovery, reducing volatility spillover, hedging and risk management.  The objective of the study was identified to Examine Linear Relationship between Spot and Future prices of Selected ten Agro Commodities. Ten agricultural commodities frequently traded on NCDEX i.e. Mustard Seed, Refined Soy Oil, Crude Sunflower Oil, Refined Castor Oil, Groundnut, Raw Yellow Peas, Moong, Bajra, Paddy (Basmati), Maize Feed were undertaken in the study. The results reported the presence of high positive significant correlation between the Agro spot and future commodity prices. Higher the spot prices of the Agro commodities, higher is the future prices. The Spot and future prices of all the agro commodities showed   fluctuations during the period of study. Mean spot prices were greater than mean future prices for all agro commodities except Mustard Seed, Groundnut and Paddy (Basmati). ADF Unit root test showed that time series was not stationary at level 0. However, the time series became stationary at first log transformation for all 10 commodities. High positive significant correlation existed between the Agro spot and future commodity prices which showed that during the period of study they were moving in the same direction. Volatility in agricultural markets is a known devil due to the nature of the commodities (seasonal and dependent on rainfall). Volatility shall exist in both spot and future markets of commodities. The only way it can be managed well in the interests of stakeholders by having a larger segment of the market participants on the online trading platforms and the latest information is always available to them.

Price discovery is one of the major economic functions of the futures market. It provides a competitive response of futures prices which are derived from spot prices. Basically, a commodity derivative is multifarious in a growing country like India. India is one of the leading producers of agriculture commodities. The main aim of this study was to find out the effectiveness of commodity derivatives in price discovery in agriculture commodities in India. The price discovery relationship of 10 agricultural commodities was investigated. The daily price information of 10 agriculture commodities namely wheat, sugar, chili, mustard-seed, chana (Bengal gram whole), pepper, turmeric, soybean, barley, and maize were taken from NCDEX for the period from 2005 to 2015. The study used simple descriptive statistics, ADF test, PP-test, Johansen co-integration, and Granger causality test to find the answers. We found that there is long-run equilibrium relationship established in 10 commodities. The outcome of the Granger causality test showed unidirectional Granger lead-lag relationships between spot and futures markets in all agricultural commodities in which there were two co-integrations and causality. The findings of the study have important policy and regulatory implications for the Indian commodity futures market. The study will also be helpful to the investors and other market participants to understand the mechanism of the Indian commodity futures market.

PurposePrice discovery and spillover effect are prominent indicators in the commodity futures market to protect the interest of consumers, farmers and to hedge sharp price fluctuations. The purpose of this paper is to investigate empirically the price discovery and volatility spillover in Indian agriculture spot and futures commodity markets.Design/methodology/approachThis study uses Granger causality, vector error correction model (VECM) and exponential generalized autoregressive conditional heteroskedasticity (EGARCH) to examines the price discovery and spillover effects for nine most liquid agricultural commodities in spot and futures markets traded on National Commodity and Derivatives Exchange (NCDEX).FindingsThe VECM results show that price discovery exists in all the nine commodities with futures market leading the spot in case of six commodities, namely soybean seed, coriander, turmeric, castor seed, guar seed and chana. Whereas in case of three commodities (cotton seed, rape mustard seed and jeera), price discovery takes place in the spot market. The Granger causality tests indicate that futures markets have stronger ability to predict spot prices. Supporting these, the results from EGARCH volatility test reveal that there exist mutual spillover effects on futures and spot markets. Thus, it could be inferred that futures market is more efficient in price discovery of agricultural commodities in India.Research limitations/implicationsThese results can help the market participants to benefit by hedging out the uncertainty and the policymakers to design futures contracts to improve the efficiency of the agricultural commodity derivatives market.Practical implicationsThe findings provide fresh view on lead–lag relationship between future and spot prices using the latest data confirming that futures market indeed is dominant in price discovery.Originality/valueThere are very few studies that have explored the efficiency of the agricultural commodity spot and futures markets in India using both price discovery and volatility spillover in a detailed manner, especially at the individual agriculture commodity level.

PurposeThe study examines herding in the Indian stock and commodity futures market including agricultural, metal and energy commodities. Herding is studied under various market conditions: rising and declining, high and low volatility. The study also examines spillover effects of herding.Design/methodology/approachThe study adapts the cross-sectional absolute deviation model given by Chang et al. (2000) to examine herding in Indian stock and commodity futures markets.FindingsThe results of the study indicate absence of herding among commodity futures under all market conditions except for the declining market where herding is present among energy futures. The investors investing in agricultural and energy commodities have a higher tendency to herd during high volatility days as compared to low volatility days. Further, the study of herding spillover effects indicates that the price fluctuations in metal commodities affect herding in agricultural and energy commodities.Research limitations/implicationsThe results can help market participants to diversify the risk by investing in agricultural, metal and energy futures along with the stocks.Originality/valueMajority of the previous studies explore herding among stocks and ignore commodities especially agricultural commodities. This study attempts to fill the gap by studying herding among various commodity futures. To the best of our knowledge this is the first study to explore herding spillover effects in the Indian stock and commodity futures market.

A Study on Performance of Equity Stocks in Indian Commodity Market

Introduction. Innovative financial market instruments have become an essential component of modern financial systems, actively influencing economic development. In the light of globalization and rapid technological progress, financial markets are undergoing significant changes due to the introduction of new technologies such as blockchain, artificial intelligence, and mobile payments. These innovations not only optimize financial processes but also contribute to increased market efficiency, access to financial resources, and cost reduction. At the same time, the application of these cutting-edge instruments is accompanied by growing risks and challenges for regulators, necessitating the development of adaptive management and control strategies. Purpose. The main goal of the article is to define the essence and classification of innovative financial market instruments, as well as to explore their role in enhancing the efficiency of financial markets. The task is to reveal the relationship between innovative financial instruments and overall economic development, emphasizing their importance for modern financial systems. Method (methodology). The article employs a comprehensive approach that includes methods of comparison, systematization, and analysis. Methods of analyzing contemporary scientific works and studies are used, along with a classification method to identify the main types of innovative instruments in the financial market. Through the analysis of theoretical concepts, the impact of innovations on financial markets is examined, and key development directions are identified. Results. The article explores the concept and identifies the types of innovative financial market instruments, as well as their impact on the efficiency of market operations. Key directions for the development of innovations in the financial sector are outlined, and a classification of innovative instruments is proposed based on different criteria. The role of innovations in reducing risks and ensuring the stability of financial systems in a dynamic economic environment is determined.

Purpose: The aim of the research is to assess the role of single-stock futures in the price discovery process on the Warsaw Stock Exchange. The paper seeks to determine whether the futures market contributes significantly to price discovery or if the spot market remains dominant. Design/methodology/approach: The study employs a two-dimensional vector error correction model (VECM) to describe the dynamics of the relationship between cointegrated spot and futures prices. The analysis is conducted for single stock futures with the highest multiplier (1000) and for underlying stocks. Based on the model, both short-term and long-term causal relationships are analysed and the relative contribution of the spot and futures markets to price discovery is determined for each of the eight pairs of analysed assets separately. Findings: The findings indicate that, on the WSE, the spot market generally plays a dominant role in the price discovery process, with an average contribution of 72.03%, compared to 27.97% for the single-stock futures market. Short- and long-term Granger causality tests confirmed that, in most cases, stock prices lead futures prices. This suggests that high leverage alone does not guarantee a strong price discovery role of futures. Research limitations/implications: The research focuses on only eight single-stock futures classes, with the highest contract multiplier, which may not fully represent the broader market. Future research could expand the analysis by incorporating derivatives with lower multipliers as well as making a combined analysis of the prices of stocks, single-stock futures, and index futures. Practical implications: The research highlights that, on the WSE, the spot market generally dominates the price discovery process. For investors in single-stock futures, this means that relying solely on futures market signals may not be sufficient for forecasting price movements. The study also indicates that high leverage does not guarantee a dominant role of futures in price discovery, which could influence trading strategies and risk management approaches. Economically, these findings can guide market participants in optimizing investment strategies and regulators in assessing the efficiency of the derivatives market. Originality/value: The paper provides a detailed analysis of the price discovery role of single- stock futures on the WSE, an area with limited prior research. Unlike previous studies, it examines both short- and long-term causal relationships for selected high-multiplier futures contracts, offering new insights into market efficiency. The study is valuable for investors, traders, and regulators by clarifying the dominant role of the spot market and highlighting factors influencing futures market efficiency. It is particularly relevant for financial analysts, policymakers, and market participants seeking to improve trading strategies and market oversight. Keywords: price discovery, single-stock futures, Granger causality. Category of the paper: Research paper.

Price discovery is one of the important economic functions of Commodity futures market as it provides competitive future price from which spot market can be derived. This study analyses whether crude oil futures market serves a price discovery mechanism for spot market prices and vice versa. The analysis includes use of econometric tools like Augmented Dickey Fuller (ADF) test and Phillips-Perron (PP) test to check stationary of data, Co- integration test to examine the long run relationship between futures and spot prices of crude oil by using Eviews software. The daily data 1st January 2024 to 31st December 2024 has been taken for the study for analysis. Our findings suggest that crude oil futures price movement can be used as price discovery vehicle for spot market transactions.