An Empirical Examination of the Process of Information Transmission in India's Agriculture Futures Markets

Download or read book An Empirical Examination of the Process of Information Transmission in India's Agriculture Futures Markets written by Sanjay Sehgal and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the process of information transmission in India's agriculture commodity futures market by investigating the price discovery and direction of volatility spillovers between futures and spot prices of nine agricultural commodities viz., Barley, Cardamom, Castor seed, Chana (Chickpea), Chili, Mentha oil, Pepper, Soybean and Refined Soya, traded on Multi-Commodity Exchange (MCX) and National Commodity & Derivatives Exchange (NCDEX). The study uses the daily data from January 01, 2009 to May 31, 2013. The empirical results confirm the price discovery between futures and spot prices, indicating strong information transmission. The volatility spillover results indicate that in the short-run, there is strong volatility spillover from spot to futures market whereas in the long-run it is exactly opposite. Further, the study applies the directional spillover method pioneered by Diebold and Yilmaz (2012) to analyze the direction of informational spillover. The estimated results suggest that the magnitude of volatility based information spillover is low in agri-futures market. With the exception of Soybean and Refined Soya, the spillovers are basically intra-commodity and not inter-commodity. Finally, the study concludes that India's agriculture commodity derivatives market is evolving in the right direction as futures market has started playing pivotal role in the information transmission process.