Effect of Volatility and Causal Movement between Cotton Futures Price and Cotton Spot Price in Indian Commodity Market
Ilkogretim Online - Elementary Education Online, Year; Vol 20 (Issue 4): pp. 1765-1775, 2021
11 Pages Posted: 9 Apr 2021
Date Written: March 24, 2021
This study examines the market and price behavior is the supreme problem of commodity investors and trader. The present study spotlights the price behavior/movement and market behavior/volatile in Indian agricultural commodity market (MCX). The study aims to study the volatility and caused effect between cotton futures price and cotton spot price from the period 2017 to 2019 daily data were collected from Multi Commodity Exchange (MCX). This study also analyzed the correlation and cointegration between the cotton spot price and cotton futures price in Multi Commodity Exchange (MCX). The study employed statistics tools such as descriptive statistics, unit root test (ADF test), correlation test, OLS regression test, cointegration test, granger causality test, and GRACH Test. The study found that existence of normality and absence of unit root in time series data, also risk was higher than the mean return of cotton futures and spot price. There was low positive correlation between cotton futures price and cotton spot price. Produced very low and least positive impact of cotton spot price on cotton futures price whereas low and positive impact of cotton futures price on cotton spot price. The GARCH test evidenced that low volatility secured both cotton futures price and cotton spot price and absence of cause and effect during the study period. The investors have to consider the high volatility commodity futures price which make effective in trading and investments in the aspect of price discovery. The result replicates that each commodity traded or invested in exchange has different price effectiveness concept and the investors and trader should recognize the commodity to hedge price risk.
Keywords: Commodity Exchange, Spot Market, Futures Market, Commodity Market, Price Discovery
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