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Price Transmission in Cotton Futures Market: Evidence from Three Countries

Author

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  • Amrinder Singh

    (Accounting & Finance Area, Indian Institute of Management Sirmaur, Paonta Sahib 173025, India)

  • Tarun Kumar Soni

    (Finance Area, Lal Bahadur Shastri Institute of Management, New Delhi 110075, India)

Abstract

This study examines the price transmission between cotton prices in U.S., Indian, and Chinese futures markets. We focus on studying the long-run price movements using cointegration and alternate causality tests. The empirical results indicate the following: (a) the U.S. cotton futures market continues to be the most dominant market, and it leads price changes in India and China; (b) the cotton prices in India also impacts the cotton prices in China as we report a unidirectional relationship flowing from India to China; (c) there is duality of direction of price transmission for U.S. and Chinese commodity markets as we document bi-directional causality between U.S. to Chinese cotton futures for the entire period and uni-directional causality from U.S. to Chinese markets for the two sub-periods; (d) the long-term relationship between the three markets has seen a significant shift as documented by the absence of cointegration which may be due to changes in government policy, especially in India and China specifically after 2014. Overall, results provide support for further reforms especially for Indian and Chinese commodity exchanges so that they can play a vital role in the price discovery process especially for commodities that are largely produced or consumed in these economies.

Suggested Citation

  • Amrinder Singh & Tarun Kumar Soni, 2021. "Price Transmission in Cotton Futures Market: Evidence from Three Countries," JRFM, MDPI, vol. 14(9), pages 1-14, September.
    • Handle: RePEc:gam:jjrfmx:v:14:y:2021:i:9:p:444-:d:635358
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    References listed on IDEAS

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    Cited by:

    1. Qingjie Zhou & Panpan Zhu & You Wu & Yinpeng Zhang, 2022. "Research on the Volatility of the Cotton Market under Different Term Structures: Perspective from Investor Attention," Sustainability, MDPI, vol. 14(21), pages 1-20, November.
    2. Xiaoxiao Li & Bo Wang & Lingyan Sun & Honghui Zhu & Ning Lv & Jiaqi Zhang, 2023. "The Transmission Effect Test of China’s Rotation Mechanism on the Cotton Reserve Market," Sustainability, MDPI, vol. 15(5), pages 1-17, February.

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