TITLE:
Is the Causal Nexus between Agricultural Commodity Futures and Spot Prices Asymmetric? Evidence from India
AUTHORS:
Anto Joseph, Suresh K.G., Garima Sisodia
KEYWORDS:
Price Discovery, Causality, Asymmetric Causality, Commodity Futures
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.2,
April
21,
2015
ABSTRACT: The
present study investigates the potential asymmetric causal relationship between
the Indian agricultural commodity futures and spot prices by employing
asymmetric causality test [1]. The asymmetry
issue in the causal relationship is vital because the impact of a negative
shock might be different than the impact of a positive shock even in a
situation in which the degree of the shock is the same in absolute terms. The asymmetric
causality test results indicate that futures to spot price causalities are
significant in all the eleven commodities under study in both positive and
negative components. But the extent of causality from future to spot market is
stronger in negative components as indicated by the causal parameter. The
asymmetric causality from spot to futures price is significant for only two
commodities, coriander and castor seeds. Overall the results
indicate that agricultural futures market in India has a powerful price
discovery function in all the selected commodities, which in turn indicates the
efficiency of Indian agricultural commodity futures market.