Agricultural Commodity Futures and Risk Management: Evidence from NMCE

Soni, T.K. (2015). Agricultural Commodity Futures and Risk Management: Evidence from NMCE, NIFM Journal of Public Financial Management,7(1),119-128

18 Pages Posted: 29 Sep 2012 Last revised: 18 Sep 2015

See all articles by Tarun Kumar Soni

Tarun Kumar Soni

Fore School of Management; NITI Aayog

Date Written: September 28, 2012

Abstract

The paper aims to study the market efficiency, unbiasedness among seventeen agricultural commodities futures contracts traded at National Multi-Commodity Exchange of India ltd. (NMCE). The paper uses a two step approach by first testing long run relationship using Johansen's cointegration approach and subsequently, the dynamic OLS approach proposed by Stock and Watson (1993) was used to estimate the coefficients in the cointegration equation, followed by Wald test to test the statistical significance of each coefficient. The Wald chi-square test statistics indicate that futures markets are not efficient in predicting the future ready prices. The results also testify the fact that the futures contracts are not perfect hedge against the variations in ready prices. The results have important implications on the previous research done on the same issue which have simply tested the efficiency on the basis of cointegration results, ignoring the restrictions on cointegrating vectors may result in incorrect assessment of price discovery and risk management functions of commodity exchanges. Further, the results also urge for further reforms in the agricultural commodity futures through increasing awareness, wider participation, better infrastructure etc. so as to make futures market more efficient in the long run and perform their role of price discovery and risk management more efficiently and effectively.

Keywords: Market efficiency, Commodity markets, NMCE, India

JEL Classification: C14, C32, G14

Suggested Citation

Soni, Tarun Kumar, Agricultural Commodity Futures and Risk Management: Evidence from NMCE (September 28, 2012). Soni, T.K. (2015). Agricultural Commodity Futures and Risk Management: Evidence from NMCE, NIFM Journal of Public Financial Management,7(1),119-128, Available at SSRN: https://ssrn.com/abstract=2153590

Tarun Kumar Soni (Contact Author)

Fore School of Management ( email )

New Delhi
India

NITI Aayog ( email )

NITI Aayog
New Delhi, 100018
India

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