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Hedging Efficiency of Commodity Derivatives: A Comparison of Spices Futures with Metals Futures in India

Anjana Krishnakumar, Master of Commerce, Sri C. Achutha Menon Government College, Kuttanellur, Thrissur, Kerala 680014, India. , Anjana Krishnakumar

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Journal of Social Welfare and Management 10(3 (Special Issue)):p 462-467, Sep-Dec 2018. | DOI: http://dx.doi.org/10.21088/JSWM.0975.0231.10318.23

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Abstract

Commodities including metals and spices are preferred forms of investment in India particularly during post reform period. The prices of commodities are subject to wild market fluctuations due to the presence of wide range of forces ranging from national to global. Writing derivatives against these assets is superior tool to leverage risks from such imperfections at the market places. In this parlance, this study aims to analyze and compare price performance, market volatility and hedging efficiency of spices and metals futures in India. A secondary data based study was conducted by taking daily closing prices from both future and spot markets of four metals and three spices for a period of five years from 2013 to 2018. The study examines the hedging efficiency of the metals and spices market by formulating GARCH model. The study shows some level of divergence in the price volatility across commodity markets. However, the study could not find much difference in hedging efficiencies of metals and spices future markets in India.

 

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DOI: http://dx.doi.org/10.21088/JSWM.0975.0231.10318.23

Keywords

Commodity Market; Metals ; Spices; Price Volatility; Price Discovery; Hedging Efficiency.

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