Commodity Futures Market in India: Price Behaviour & Hedging Efficiency

Abstract

This research article investigates price and return behaviour of 6 Agricultural and 4 Non-Agricultural commodities during 2009 - 2013. Data for all commodities contracts are not available for substantial period in 2013 except for Refined Soya Oil. The objective is to find "Hedging Effectiveness of Commodity Futures" derive inter-linkage and lead & lag relation between commodity .Spot and Future" prices. The analysis is done with the help of Johansen Co-integration and Granger Causality test. The risk management role of Indian commodity futures market is examined by estimating constant and dynamics hedging ratios using Ordinary Least Squares (OLS) regression and Vector Error Correction Model (VECM). The findings suggest that, spot and future prices are eo-integrated and the returns show causality between them. The result of hedging effectiveness is not very encouraging for non agricultural commodities.