IDEAS home Printed from https://ideas.repec.org/a/nwe/eajour/y2024i4p796-809.html
   My bibliography  Save this article

A Study of Market Efficiency and Volatility of Jeera Future Trading

Author

Listed:
  • Tanushree Sharma

    (Manipal University Jaipur, India)

  • Puja Sharma

    (Department of Commerce, Manipal University Jaipur, India)

  • Simon Grima

    (Faculty of Business, Economics and Management, University of Latvia, University of Malta)

Abstract

In 2004, the Jeera futures contract was launched on the National Commodity & Derivatives Exchange Limited (NCDEX) platform. Since Jeera was launched on the NCDEX it has witnessed volatility, and in the last 10 years, the Jeera rates have doubled on the spot markets. This was due to a fall in production – especially in Gujarat. To examine the performance of the Jeera futures market and its efficiency, econometric models, specifically Johansen’s Co-integration, the Vector Error Correction Model, the Impulse Response and the Variance Decomposition, are used on data from 2005 to 2019 from the NCDEX. The analysis revealed a longterm correlation between spot and futures prices, demonstrating that futures contracts are a viable hedging tool. Information flows unidirectionally from spot markets to future markets. Both markets undergo error correction to restore market equilibrium. The Granger causality test is utilised to assess the causal connection between future and spot prices. The augmented GARCH model was utilised to examine the contemporaneous relationship between spot volatility and unexpected futures trading activity, and the Granger Causality test was utilised to determine causality. The finding supports regulators’, real hedgers’, and other traders’ concerns.

Suggested Citation

  • Tanushree Sharma & Puja Sharma & Simon Grima, 2024. "A Study of Market Efficiency and Volatility of Jeera Future Trading," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 796-809, December.
    • Handle: RePEc:nwe:eajour:y:2024:i:4:p:796-809
    as

    Download full text from publisher

    File URL: https://www.unwe.bg/doi/eajournal/2024.4/EA.2024.4.06.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jian Yang & R. Brian Balyeat & David J. Leatham, 2005. "Futures Trading Activity and Commodity Cash Price Volatility," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(1‐2), pages 297-323, January.
    2. Sheeba Kapil & Kanwal Nayan Kapil, 2010. "Commodity trading advisors (CTAs) for the Indian commodity market," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 5(2), pages 124-137, April.
    3. Wasim Ahmad & Sanjay Sehgal, 2015. "The investigation of destabilization effect in India’s agriculture commodity futures market," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 7(2), pages 122-139, May.
    4. Sendhil, R. & Kar, Amit & Mathur, V.C. & Jha, Girish K., 2013. "Price Discovery, Transmission and Volatility: Evidence from Agricultural Commodity Futures," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 26(01), June.
    5. Bessembinder, Hendrik & Seguin, Paul J, 1992. "Futures-Trading Activity and Stock Price Volatility," Journal of Finance, American Finance Association, vol. 47(5), pages 2015-2034, December.
    6. Dinesh Kumar Sharma & Meenakshi Malhotra, 2015. "Impact of futures trading on volatility of spot market-a case of guar seed," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 75(3), pages 416-431, September.
    7. repec:rej:journl:v:16:y:2013:i:47:p:211-228 is not listed on IDEAS
    8. Naik, Gopal & Jain, Sudhir Kumar, 2001. "Effieciency and Unbiasedness of Indian Commodity Futures Markets," Indian Journal of Agricultural Economics, Indian Society of Agricultural Economics, vol. 56(2), June.
    9. Manogna R L & Aswini Kumar Mishra, 2020. "Price discovery and volatility spillover: an empirical evidence from spot and futures agricultural commodity markets in India," Journal of Agribusiness in Developing and Emerging Economies, Emerald Group Publishing Limited, vol. 10(4), pages 447-473, May.
    10. Marc J. M. Bohmann & David Michayluk & Vinay Patel, 2019. "Price discovery in commodity derivatives: Speculation or hedging?," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(9), pages 1107-1121, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Meenakshi Malhotra & Dinesh Kumar Sharma, 2016. "Volatility Dynamics in Oil and Oilseeds Spot and Futures Market in India," Vikalpa: The Journal for Decision Makers, , vol. 41(2), pages 132-148, June.
    3. Bhabani Sankar Rout & Nupur Moni Das & K. Chandrasekhara Rao, 2024. "Does Commodity Derivatives Function Effectively? A lengthy Discussion," IIM Kozhikode Society & Management Review, , vol. 13(2), pages 154-165, July.
    4. Algirdas Justinas Staugaitis & Bernardas Vaznonis, 2022. "Financial Speculation Impact on Agricultural and Other Commodity Return Volatility: Implications for Sustainable Development and Food Security," Agriculture, MDPI, vol. 12(11), pages 1-27, November.
    5. John M. Fry & Baoying Lai & Mark Rhodes, 2011. "The interdependence of Coffee spot and futures market," Working Papers 2011.1, International Network for Economic Research - INFER.
    6. Rahul Kumar Singh, 2023. "Efficiency of Wheat Futures across APMC Mandis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 21(3), pages 681-701, September.
    7. Zhang, Chuanhai & Ma, Huan & Liao, Xiaosai, 2023. "Futures trading activity and the jump risk of spot market: Evidence from the bitcoin market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    8. A.N. Vijayakumar, 2023. "Declining trade interest in Indian commodity derivatives: a survey-based study on cardamom futures contract," Global Business and Economics Review, Inderscience Enterprises Ltd, vol. 28(3), pages 333-346.
    9. Bhargava, Vivek & Malhotra, D.K., 2007. "The relationship between futures trading activity and exchange rate volatility, revisited," Journal of Multinational Financial Management, Elsevier, vol. 17(2), pages 95-111, April.
    10. Hung, Mao-Wei & So, Leh-Chyan, 2009. "New insights into India’s single stock futures markets," MPRA Paper 52491, University Library of Munich, Germany.
    11. Ya-Wen Lai, 2023. "Impact of futures’ trader types on stock market quality: evidence from Taiwan," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(2), pages 417-436, June.
    12. Nouf Alsharif & Sambit Bhattacharyya & Maurizio Intartaglia, 2016. "Economic Diversification in Resource Rich Countries: Uncovering the State of Knowledge," Working Paper Series 09816, Department of Economics, University of Sussex Business School.
    13. Chan, Leo H. & Nguyen, Chi M. & Chan, Kam C., 2015. "A new approach to measure speculation in the oil futures market and some policy implications," Energy Policy, Elsevier, vol. 86(C), pages 133-141.
    14. Čermák, Michal & Ligocká, Marie, 2022. "Could Exist a Causality Between the Most Traded Commodities and Futures Commodity Prices in the Agricultural Market?," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 14(4), December.
    15. Algieri, Bernardina & Leccadito, Arturo, 2017. "Assessing contagion risk from energy and non-energy commodity markets," Energy Economics, Elsevier, vol. 62(C), pages 312-322.
    16. Gary Robinson, 1993. "The Effect of Futures Trading on Cash Market Volatility: Evidence from the London Stock Exchange," Bank of England working papers 19, Bank of England.
    17. Zhuo Chen & Bo Yan & Hanwen Kang, 2022. "Dynamic correlation between crude oil and agricultural futures markets," Review of Development Economics, Wiley Blackwell, vol. 26(3), pages 1798-1849, August.
    18. Holmes, Phil & Rougier, Jonathan, 2005. "Trading volume and contract rollover in futures contracts," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 317-338, March.
    19. repec:wyi:journl:002169 is not listed on IDEAS
    20. Yuan, Xianghui & Li, Xiang, 2022. "Delta-hedging demand and intraday momentum: Evidence from China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 600(C).
    21. Vollmer, Teresa & von Cramon-Taubadel, Stephan, 2019. "The influence of Brazilian exports on price transmission processes in the coffee sector: a Markov-switching approach," Department of Agricultural and Rural Development (DARE) Discussion Papers 291497, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).

    More about this item

    Keywords

    Future trading; Market efficiency; Agri -commodities; Jeera;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nwe:eajour:y:2024:i:4:p:796-809. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Vanya Lazarova (email available below). General contact details of provider: https://edirc.repec.org/data/unweebg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.