In the harvest period, when the futures trading volume is high, the futures market leads the spot market whereas in the lean period both markets jointly perform a price discovery, say the authors.
Authors
Brajesh Kumar, Professor, Jindal Global Business School, O.P. Jindal Global University, Sonipat, Haryana, India.
Ajay Pandey, Professor, Indian Institute of Management (IIM Ahmedabad), Ahmedabad, Gujarat, India.
Summary
The price discovery role of the Indian commodity futures markets is investigated through return and volatility spillovers between spot and futures prices. For agricultural commodities, the price discovery takes place in both spot and futures markets.
However, in the harvest period, when the futures trading volume is high, the futures market leads the spot market whereas in the lean period both markets jointly perform a price discovery.
For the precious metals and energy commodities, the futures markets lead the price discovery role. In the case of industrial metals, LME spot prices (which are taken as spot prices for settlement by Indian exchanges) play a significant role in the price discovery process in the Indian market.
Published in: Bogazici Journal
To read the full article, please click here.
