Nonlinearity in the Indian Commodity Markets: Evidence from a Battery of Tests

Abstract

This study tests for the presence of nonlinear dependence in the rate of returns series for four multi commodity exchange indices. Six different tests for detecting nonlinearity were employed and the statistics were estimated using both the asymptotic theory and the bootstrap. The analysis of results reveals that there is a consensus in favor of nonlinearity for Metal and Energy indices even after removing linear serial correlations from the data, hence, contradicting the unpredictable criterion of weak-form efficient market hypothesis. Further the results for Agriculture spot index is almost reversed as evidence against nonlinearity is rejected by all the tests employed in the study. Thus the nonlinear characteristics of Indian commodity indices especially metal and energy indices are confirmed by the study.