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

An Empirical Study of Select Agricultural Derivatives Traded on Ncdex (india)


Affiliations
1 Centre for Management Education All India Management Association New Delhi, India
2 President Kings University Aplaku Hills, Accra, Ghana
     

   Subscribe/Renew Journal


The paper focuses on empirically researching the correlation between spot and future prices to ascertain the extent to which spot prices impact the prices of future contracts for select four agricultural commodities, namely, Chana, Pepper Malabar, Refined Soya Oil and Guar seed. Further, an attempt has been made to investigate whether future contracts are fairly priced for these products to ascertain the existence of arbitrage opportunities. The paper considered all the contracts of the above commodities over a period of 13 months, i.e., July 2008 to July 2009 (both the months inclusive). In all 27 future contracts were analyzed and eight hypotheses were formulated and tested concerning the volatility of spot and future contract prices, effect of spot closing prices on opening prices of future contracts and pricing of future contracts. Further, the study also explored the extent of bandwidth in which overpricing and under pricing of future contracts took place. The study concluded that no significant volatility has been observed in the prices of spot and future contracts of the chosen agricultural commodities. Future contracts of Pepper and Guar seeds were not fairly priced which lent scope for arbitrage opportunity.

Keywords

Volatility, Spot Price, Future Contracts, Agricultural Commodities, Chana, Pepper, Guar Seed, Soya, Trading Days, under Pricing, Overpricing
User
Notifications

  • Anderson, R. W. and Danthine, J. P. (1981), Cross Hedging, Journal of Political Economy, 81: 1182-1196.
  • Bhaduri and Durai (2008), Optimal Hedge Ratio and Hedging Effectiveness of Stock Index Futures: Evidence from India, Macroeconomics and Finance in Emerging Market Economies, 1: 121-134.
  • Bhattacharya, H. (2007), Commodity Derivative Market in India, Economic and Political Weekly, March.
  • Bose, S. (2007), Understanding the Volatility Characteristics and Transmission Effects in the Indian Stock Index and Index Futures Market, Money and Finance, ICRA Bulletin, 139-162.
  • Choudhry (2004), The Hedging Effectiveness of Constant and Time-varying Hedge Ratios Using Three Pacific Basin Stock Futures, International Review of Economics and Finance, 13: 271-385.
  • Ederington, L.cH. (1979), The Hedging Performance of the New Future Markets, The Journal of Finance, 36: 157-170.
  • Floros C. and Vougas (2006), Hedging Effectiveness in Greek Stock Index Futures Market 1991-2001, International Research Journal of Finance and Economics, 5: 7-18.
  • Gemmill (1985), Forward Contracts or International Buffer Stocks? A Study of their Relative Efficiencies in Stabilizing Commodity Export Earnings, Economic Journal, 95: 400-417.
  • Gilbert (1985), Futures Trading and the Welfare Evaluation of Commodity Price Stabilization, Economic Journal, 95(Sep): 61-637.
  • Gorton, Gary B. and Rouwenhorest, Geert K. (2005), Facts and Fantasies about Commodity Futures, available at http://ssrn.com
  • Johnson, L. (1960), The Theory of Hedging and Speculation in Commodity Futures, Review of Economic Studies, 27: 139 – 151.
  • Kaminsky, Graciela (1989), Efficiency in Commodity Futures Markets, available at http://ssrn.com
  • Lokare, S. M. (2007), Commodity Derivatives and Price Risk Management: An Empirical Anecdote from India, Reserve Bank of India, Occasional Papers, 28(2).
  • Mishra Alok Kumar (2008), Commodity Futures Markets in India: Riding the Growth Phase, available at http://ssrn.com
  • Nath, C. Golaka and Lingareddy, Tulsi (2008), Commodity Derivative Market and Its Impact on Spot Market, available at http://ssrn.com
  • Rolfo (1980), Optimal Hedging under Price and Quantity Uncertainty: The Case of a Cocoa Producer, Journal of Political Economy, 88: 100-116.
  • Roy and Kumar (2007), Castor Seed Futures Trading: Seasonality in Return of Spot and Futures Market, paper presented at the 4th International Conference of Asia-pacific Association of Derivatives (APAD), Gurgaon, India.
  • Sahi, Gurpreet S. and Raizada, Gaurav (2006), Commodity Futures Market Efficiency in India and Effect on Inflation, available at http://ssrn.com
  • Thomas, Susan (2003), Agricultural Commodity Market in India: Policy Issues for Growth, Technical Report, IGIDR, India.
  • Wang, Hong and Bingfanke (2005), Efficiency Tests of Agricultural Commodity Futures Markets in China, Australian Journal of Agricultural and Resource Economics, 49(2): 125-141.

Abstract Views: 622

PDF Views: 2




  • An Empirical Study of Select Agricultural Derivatives Traded on Ncdex (india)

Abstract Views: 622  |  PDF Views: 2

Authors

Gurbandini Kaur
Centre for Management Education All India Management Association New Delhi, India
D. N. Rao
President Kings University Aplaku Hills, Accra, Ghana

Abstract


The paper focuses on empirically researching the correlation between spot and future prices to ascertain the extent to which spot prices impact the prices of future contracts for select four agricultural commodities, namely, Chana, Pepper Malabar, Refined Soya Oil and Guar seed. Further, an attempt has been made to investigate whether future contracts are fairly priced for these products to ascertain the existence of arbitrage opportunities. The paper considered all the contracts of the above commodities over a period of 13 months, i.e., July 2008 to July 2009 (both the months inclusive). In all 27 future contracts were analyzed and eight hypotheses were formulated and tested concerning the volatility of spot and future contract prices, effect of spot closing prices on opening prices of future contracts and pricing of future contracts. Further, the study also explored the extent of bandwidth in which overpricing and under pricing of future contracts took place. The study concluded that no significant volatility has been observed in the prices of spot and future contracts of the chosen agricultural commodities. Future contracts of Pepper and Guar seeds were not fairly priced which lent scope for arbitrage opportunity.

Keywords


Volatility, Spot Price, Future Contracts, Agricultural Commodities, Chana, Pepper, Guar Seed, Soya, Trading Days, under Pricing, Overpricing

References