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Price Discovery and Volatility Spillover: Evidence from Indian Commodity Markets

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Listed:
  • Sanjay Sehgal
  • Namita Rajput
  • Florent Deisting

Abstract

This paper examines the price discovery and volatility spill-over relationship for Indian commodity markets. We cover twelve actively traded commodities including agriculture, metal and energy and four commodity indices. Price discovery is confirmed for eight commodities and three indices with a greater role for futures markets in the price discovery process. Price discovery results are encouraging given the nascent character of commodity markets in India. However the market does not seem to be competitive. Volatility spill-over is confirmed for only three commodities and none of the indices. This implies the Indian Commodity Market is yet to evolve an efficient risk transfer system for most commodities. The findings have implications for policy makers, hedgers and investors. The research contributes to alternative investment literature for emerging markets such as India.

Suggested Citation

  • Sanjay Sehgal & Namita Rajput & Florent Deisting, 2013. "Price Discovery and Volatility Spillover: Evidence from Indian Commodity Markets," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 7(3), pages 57-75.
    • Handle: RePEc:ibf:ijbfre:v:7:y:2013:i:3:p:57-75
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Engle, Robert F & Ng, Victor K, 1993. "Measuring and Testing the Impact of News on Volatility," Journal of Finance, American Finance Association, vol. 48(5), pages 1749-1778, December.
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    4. Ali F. Darrat & Shafiqur Rahman, 1995. "Has futures trading activity caused stock price volatility?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 15(5), pages 537-557, August.
    5. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
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    Cited by:

    1. Sanjay Sehgal & Mridul Upreti & Piyush Pandey & Aakriti Bhatia, 2015. "Real Estate Investment Selection and Empirical Analysis of Property Prices: Study of Select Residential Projects in Gurgaon, India," International Real Estate Review, Global Social Science Institute, vol. 18(4), pages 523-566.
    2. Duc Huynh, Toan Luu & Burggraf, Tobias & Nasir, Muhammad Ali, 2020. "Financialisation of natural resources & instability caused by risk transfer in commodity markets," Resources Policy, Elsevier, vol. 66(C).
    3. Wang, Gang-Jin & Chen, Yang-Yang & Si, Hui-Bin & Xie, Chi & Chevallier, Julien, 2021. "Multilayer information spillover networks analysis of China’s financial institutions based on variance decompositions," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 325-347.
    4. Konstantinos D. Melas & Anastasia Faitatzoglou & Nektarios A. Michail & Anastasia Artemiou, 2024. "Volatility Spillovers among the Major Commodities: A Review," JRFM, MDPI, vol. 17(8), pages 1-36, August.
    5. C. P. Gupta & Sanjay Sehgal & Sahaj Wadhwa, 2018. "Agricultural Commodity Trading: Is it Destabilizing Spot Markets?," Vikalpa: The Journal for Decision Makers, , vol. 43(1), pages 47-57, March.
    6. Mohd Azlan Shah Zaidi & Zulkefly Abdul Karim & Noor Amirah Zaidon, 2021. "External and Internal Shocks and the Movement of Palm Oil Price: SVAR Evidence from Malaysia," Economies, MDPI, vol. 10(1), pages 1-17, December.
    7. Edson Kambeu, 2017. "The role of Exchange Traded Funds in the price discovery process of stocks listed on the Botswana Stock Exchange," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 6(1), pages 141-148, January.
    8. Rajni Kant Rajhans & Anuradha Jain, 2015. "Volatility Spillover in Foreign Exchange Markets," Paradigm, , vol. 19(2), pages 137-151, December.
    9. Muneesh Kumar & Tarunika Jain Agrawal & Srishti Sehgal, 2017. "Domestic and International Information Linkages for Indian Commodities Market in the Pre- and Post-CTT Periods," Metamorphosis: A Journal of Management Research, , vol. 16(2), pages 75-91, December.
    10. Mala Dutt & Sanjay Sehgal, 2018. "Domestic and International Information Linkages between Gold Spot and Futures Markets: An Empirical Study for India," Metamorphosis: A Journal of Management Research, , vol. 17(1), pages 1-17, June.

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    More about this item

    Keywords

    Price Discovery; Granger Causality; VECM; EGARCH; Volatility; Spillover;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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