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A frequency domain causality investigation between futures and spot prices of Indian commodity markets

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  • Joseph, Anto
  • Sisodia, Garima
  • Tiwari, Aviral Kumar

Abstract

This paper examines the direction, strength and extent of causal relationship between futures and spot prices of Indian commodity markets using frequency domain approach of Breitung and Candelon (2006). Frequency domain analysis offers an effective alternative tool by examining the causality in frequency domain, whereas in traditional econometric causality analysis tools focus only on the time domain. Daily futures and spot price series on eight commodities from the Indian commodity exchanges (MCX and NCDEX) were examined for the period 3rd January, 2008 to 31st December, 2012. The results of frequency domain analysis suggest that there is a strong uni-directional relationship from futures to spot in almost all the selected commodities. This indicates that futures market has a powerful price discovery function in all the selected commodities; which in turn indicates the efficiency of Indian commodity futures market.

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  • Joseph, Anto & Sisodia, Garima & Tiwari, Aviral Kumar, 2014. "A frequency domain causality investigation between futures and spot prices of Indian commodity markets," Economic Modelling, Elsevier, vol. 40(C), pages 250-258.
    • Handle: RePEc:eee:ecmode:v:40:y:2014:i:c:p:250-258
    DOI: 10.1016/j.econmod.2014.04.019
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