Price Discovery Mechanism of Spot and Futures Market in India: A Case of Selected Agri Commodities
In this study an attempt has been made to study the price discovery relationship for five of the top traded agricultural commodities on NCDEX namely chilli, Coriander, zeera, pepper and turmeric. The essential daily data on spot and futures market prices were collected from the NCDEX website for the period 2010 to 2015. The near month contract of the futures markets commodity was considered for the study, as they are mostly traded as compared to next month and far month future contracts. Augmented Dickey Fuller test was test stationary of the data series. Johansen cointegration test was access the long run relationship between the variables and Vector Error Correction Mechanism (VECM) was examine the short run dynamics. The cointegration results validate the existence of long run relationship between spot and futures series of Chilli, coriander, jeera, pepper and turmeric respectively. The vector error correction model verifies bidirectional causality between spot and futures series of Chilli, coriander, jeera, pepper and turmeric suggesting that both the spot and future markets of the selected agricultural commodity plays the leading role through price discovery process in India and assumed to be informational efficient and reacts more quickly to each other.