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