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Efficiency and Futures Trading-Price Nexus in Indian Commodity Futures Markets

Author

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  • Pravakar Sahoo

    (Pravakar Sahoo is Associate Professor in Institute of Economic Growth (IEG), Delhi-110007. E-mail: pravakar@iegindia.org and pravakarfirst@gmail.com.)

  • Rajiv Kumar

    (Rajiv Kumar is a senior fellow and Director & Chief Executive, Indian Council for Research on International Economic Relations (ICRIER), India Habitat Center, Lodhi Road, New Delhi 110 003, India. E-mail: rkumar@icrier.res.in.)

Abstract

Trading in commodity derivatives on exchange platforms is an instrument to achieve price discovery, better price risk management, besides helping macroeconomy with better resource allocation. Though the volume of commodity futures trade increased exponentially after the withdrawal of prohibition in 2003, the functioning of futures markets came under scrutiny during 2006–07 due to price rise and the government has proposed to impose transaction tax by 0.017 per cent on trading volume in the 2008–09 budget. In this context, we examine the efficiency and futures trading-price nexus for five top selected commodities namely gold, copper, petroleum crude, soya oil, and chana (chickpea) in commodity futures markets in India. Our results suggest that the commodity futures market is efficient for all five commodities. Further, we do not have sufficient evidence to support that futures market leads to higher inflation.

Suggested Citation

  • Pravakar Sahoo & Rajiv Kumar, 2009. "Efficiency and Futures Trading-Price Nexus in Indian Commodity Futures Markets," Global Business Review, International Management Institute, vol. 10(2), pages 187-201, July.
    • Handle: RePEc:sae:globus:v:10:y:2009:i:2:p:187-201
    DOI: 10.1177/097215090901000204
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    References listed on IDEAS

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    Cited by:

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    3. Pankaj Kumar GUPTA & Sunita RAVI, 2012. "Commodity Market Inefficiencies and Inflationary Pressures - India’s Economic Policy Dilemma," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 31-38.
    4. M.A. Lagesh & Mohammed Kasim C. & Sunil Paul, 2014. "Commodity Futures Indices and Traditional Asset Markets in India: DCC Evidence for Portfolio Diversification Benefits," Global Business Review, International Management Institute, vol. 15(4), pages 777-793, December.
    5. Ying Jiang & Neil Kellard & Xiaoquan Liu, 2020. "Night trading and market quality: Evidence from Chinese and US precious metal futures markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(10), pages 1486-1507, October.
    6. Muneer Shaik & Abhiram Kartik Lanka & Gurmeet Singh, 2021. "Analysis of lead-lag relationship and volatility spillover: evidence from Indian agriculture commodity markets," International Journal of Bonds and Derivatives, Inderscience Enterprises Ltd, vol. 4(3), pages 258-279.
    7. Krzysztof Borowski & Malgorzata Lukasik, 2015. "Analysis of Selected Seasonality Effects in the Following Agricultural Markets: Corn, Wheat, Coffee, Cocoa, Sugar, Cotton and Soybeans," Eurasian Journal of Business and Management, Eurasian Publications, vol. 3(2), pages 12-37.
    8. repec:ddj:fserec:y:2012:p:31-34 is not listed on IDEAS
    9. Narinder Pal Singh & Archana Singh, 2018. "Global Financial Crisis and Price Risk Management in Gold Futures Market- Evidences from Indian & US Markets," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 21(68), pages 111-120, June.
    10. Narinder Pal Singh & Archana Singh, 2017. "Empirical Investigation on Food Inflation and Efficiency Issues in Indian Agri-futures Market," Emerging Economy Studies, International Management Institute, vol. 3(2), pages 156-165, November.
    11. Mohanty, Sunil K. & Mishra, Sibanjan, 2020. "Regulatory reform and market efficiency: The case of Indian agricultural commodity futures markets," Research in International Business and Finance, Elsevier, vol. 52(C).
    12. Shashi Gupta & Himanshu Choudhary & D. R. Agarwal, 2018. "An Empirical Analysis of Market Efficiency and Price Discovery in Indian Commodity Market," Global Business Review, International Management Institute, vol. 19(3), pages 771-789, June.
    13. Rajesh Pathak & Kaushik Bhattacharjee & Nagi Reddy V., 2015. "Information Content of Derivatives under Varying Market Conditions and Moneyness: The Case of S&P CNX Nifty Index Options," Global Business Review, International Management Institute, vol. 16(2), pages 281-302, April.
    14. Ashutosh Vashishtha, 2020. "Cobweb price dynamics under the presence of agricultural futures market: theoretical analysis," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 67(2), pages 131-162, June.
    15. Sudipta Sinha & Nikunja Mohan Modak & Shib Sankar Sana, 2020. "An entropic order quantity inventory model for quality assessment considering price sensitive demand," OPSEARCH, Springer;Operational Research Society of India, vol. 57(1), pages 88-103, March.

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