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Price Discovery and Market Efficiency Revisited: Anecdotes from Indian Pepper Futures Markets
Kushankur Dey, , Shiladitya Roy
Published in Elsevier BV
2012
Abstract
We have taken pepper as a commodity to explore the co-integrating vectors, nature/direction of causality and subsequently, we try to model volatility spillover in Indian pepper futures and spot markets employing Johansen‟s co-integration, VECM, Granger causality and variance decomposition tests. We draw inferences from the study that unidirectional causality has been observed in case of pepper futures market. However, the adjustment of innovations or shocks in futures market is relatively faster than that of spot markets. For volatility modelling, we have employed models with their specifications, namely, EGARCH (2,2), EGARCH (3,3), MGARCH (Diagonal VECH and BEKK) for both pepper‟s spot and futures return-series. Study reveals that unidirectional spillover has been identified under EGARCH (2, 2) model and results obtained through EGARCH (3,3) model are not impressive. News impact curve depicts the steeper movement on the logarithmic conditional variance of futures and spot-return series, which is due to positive shocks rather than that of negative shocks. Conditional correlation seems to be dynamic in nature and the correlation between spot and futures returns of pepper has been witnessed the temporal changes.
About the journal
JournalData powered by TypesetSSRN Electronic Journal
PublisherData powered by TypesetElsevier BV
ISSN1556-5068
Open AccessYes