International Journal of Financial Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Price Discovery in Precious Metals Market: A Study of Gold


Affiliations
1 Prof. & Head, Dept. of Commerce , M D University, Rohtak
2 Assistant Prof., Dept. of Commerce, Govt. college for Women, Lakhan Majra, Rohtak, Haryana
     

   Subscribe/Renew Journal


Gold is the oldest known precious metal on this earth and for a long time it has been used as a standard currency. The present study has been undertaken with an attempt to analyze whether Indian futures market is playing its role of price discovery in case of gold or not. For the purpose of study, data for spot and futures prices for a period of four and a half years starting from June 2005 to December 2009 has been collected from the website of Multi Commodity Exchange of India Limited, India's largest commodity exchange in terms of value of trading on commodity exchanges in India. Data has been tested for statioanrity and was found non stationary. It was then transformed to make it stationary. On the basis of Johansen's cointegration test, series of spot and futures prices were found cointgrated. Granger Causality test was applied on stationary data. The results of the study show that futures market in India is performing its role of price discovery in case of Gold.

Keywords

Price Discovery, Commodity Market, Granger Causality, Cointegration.
Subscription Login to verify subscription
User
Notifications
Font Size

  • Bose, S. (May 2008). Commodity Futures Market in India: A Study of Trends in the Notional Multi- Commodity Indices. Money & Finance, 3, p.126. Electronic copy available at: http://www.ssrn. com/abstract=1262742

  • Cabrera, J., Wang, T. & Yang, J. (2009). Do futures lead price discovery in electronic foreign exchange markets?. The Journal of Futures Markets, 29, 137-156.

  • Chaihetphon, P., & Pavabutr, P. (2008). Price Discovery in Indian Gold Futures Market. Journal of Economics and Finance, Nov., 1-13.

  • Figuerola-Ferretti, I. , & Gonzalo, J. (2006). Price Discovery in Commodity Markets: The Case of Metals. Electronic copy available at: http://ssrn. com/abstract=891030

  • Golaka, N. C., & Lingareddy T. (2008). Impact of Futures Trading on Commodity Prices. Economic and Political Weekly, 43, 3, 18-23.

  • Gujarati D. N., & Sangeetha. (2007). Basic Econometrics (4th ed.). New Delhi: Tata McGraw- Hill Publishing Company Limited.

  • Gupta, K., & Singh, B. (2007). An Examination of Price Discovery and Hedging Efficiency of Indian zEquity Futures Market. 10th Indian Institute of Capital Markets Conference Paper. Electronic copy available at: http://www.ssrn.com/abstract=962002

  • Gurpreet, S., & Raizada, G.(2006). Commodity Futures Market Efficiency in India and Effect on Inflation. Electronic copy available at: http://ssrn. com/abstract=949161

  • Herbst ,F. A., McCormack , J. P. & West , N. E. (1987). Investigation of a Lead-Lag Relationship between Spot Stock Indices and their Futures contracts. The Journal of Futures Markets, 7, 373-381.

  • Karande, K. (2006). A Study of Castorseed Futures Market in India. Unpublished doctoral dissertation, Indira Gandhi Institute of development Research, Mumbai (India). Electronic copy available at: http:// www.ssrn.com/abstract=983342.

  • Kavussanos, G. M., Visvikis, I. D., & Alexakis, P. D. (2008). The Lead-Lag Relationship Between Cash and Stock Index Futures in a New Market. European Financial

  • Koontz, S. R., Garcia, P., & Hudson , M. A. (1990). Dominant-Satellite Relationships between Live Cattle Cash and Futures Markets. The Journal of Futures Markets, 10, 123-136.

  • Min, J. H., & Najand, M. (1999). A Further Investigation of the Lead –Lag Relationship between the Spot Market and Stock Index Futures: Early Evidence from Korea. The Journal of Futures Markets, 19, 217-232.

  • Oellermann, M. C., Brorsen, W. B., & Farris, P. L. (1989). Price Discovery for Feeder Cattle. The Journal of Futures Markets, 9, 113-121.

  • Pizzi, M. A. , Economopoulos, A. J., & O’neill, H. M. (1998). An Examination of the Relationship between Stock Index Cash and Futures Markets: A Cointegration Approach. The Journal of Futures Market 18, 297-305. P.298

  • Pradhan,K. C., & Bhat , K. S. (2009). An Empirical Analysis of Price Discovery, Causality and Forecasting in the Nifty Futures Markets. International Research Journal of Finance and Economics, 26, 83-92.

  • Quan J. (1992). Two-Step Testing Procedure for Price Discovery Role of Futures Prices. The Journal of Futures markets, 12, 139-149.

  • Jian, Y. ,Bessler, A .D., & Leatham, J. D. (2001). Asset Storability and Price Discovery in Commodity Futures Markets: A New Look. The Journal of Futures Markets, 21, 279-300.

  • www.futuresindustry.org accessed on 12th September 2010.

  • www.mcxindia.com accessed on 10th September 2010.


Abstract Views: 406

PDF Views: 0




  • Price Discovery in Precious Metals Market: A Study of Gold

Abstract Views: 406  |  PDF Views: 0

Authors

Narender Kumar
Prof. & Head, Dept. of Commerce , M D University, Rohtak
Sunita Arora
Assistant Prof., Dept. of Commerce, Govt. college for Women, Lakhan Majra, Rohtak, Haryana

Abstract


Gold is the oldest known precious metal on this earth and for a long time it has been used as a standard currency. The present study has been undertaken with an attempt to analyze whether Indian futures market is playing its role of price discovery in case of gold or not. For the purpose of study, data for spot and futures prices for a period of four and a half years starting from June 2005 to December 2009 has been collected from the website of Multi Commodity Exchange of India Limited, India's largest commodity exchange in terms of value of trading on commodity exchanges in India. Data has been tested for statioanrity and was found non stationary. It was then transformed to make it stationary. On the basis of Johansen's cointegration test, series of spot and futures prices were found cointgrated. Granger Causality test was applied on stationary data. The results of the study show that futures market in India is performing its role of price discovery in case of Gold.

Keywords


Price Discovery, Commodity Market, Granger Causality, Cointegration.

References