A Study on Market Behaviour and Price Discovery in Indian Commodity Markets

11 Pages Posted: 12 Dec 2010

See all articles by Mihir Dash

Mihir Dash

Alliance University - School of Business

Sowmya Brigitta Andrews

affiliation not provided to SSRN

Date Written: September 15, 2010

Abstract

The study analyzes the market behavior and causality effects between spot and futures prices in Indian commodity markets. The pattern is quite different for different commodities. Commodities that suffer from chronic backwardation should be analyzed in more detail, in order to understand the causes, and controls (known as backwardation limits) should be instituted for the same. Causality in commodities markets can be used to either hedge or speculate price movements: if changes in spot prices drive changes in futures prices, efficient hedging strategies can be formulated; whereas if changes in futures prices drive changes in spot prices, efficient speculation strategies can be formulated. Further, causality can be used in forecasting commodity spot and futures prices.

Keywords: commodity markets, spot and futures prices, contango, backwardation, causality effects

JEL Classification: G19

Suggested Citation

Dash, Mihir and Andrews, Sowmya Brigitta, A Study on Market Behaviour and Price Discovery in Indian Commodity Markets (September 15, 2010). Available at SSRN: https://ssrn.com/abstract=1722770 or http://dx.doi.org/10.2139/ssrn.1722770

Mihir Dash (Contact Author)

Alliance University - School of Business ( email )

Chikkahagade Cross,
Chandapura-Anekal Road, Anekal
Bangalore, Karnataka 562106
India
9945182465 (Phone)

Sowmya Brigitta Andrews

affiliation not provided to SSRN ( email )

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