Price Discovery in Futures and Spot Commodity Markets in India Dr. Biswat Pratap Chandra, ICICI Bank BFSI Chair Professor T.A. Pai Management Institute, Manipal-576 104, Karnataka, India. Email: biswal@mail.tapmi.org Author thanks Mr. Raghavendra Badaskar for his valuable support during the preparation of the paper. The initial versions of this paper were presented at National Workshop on Commodity Research, organized by NCDEX, 10th October, 2007, India International Centre, New Delhi and 44th Annual. Conference of the Indian Econometric Society, 3–5 January 2008, University of Hyderabad, India. Abstract The study investigated the role of commodity futures market in performing the function of price discovery. The significance of price discovery depends upon a close relationship between futures and spot prices. The price linkage between futures market and spot market has been investigated using cointegration analysis. To perform the cointegration and error correction dynamics, this study used four futures and spot indices of Multi-Commodity Exchange (MCX), Mumbai. The results show that futures and spot markets in MCX are cointegrated and sharing a long run relationship. There is a causality flow from futures markets towards spot markets indicating information flow from futures to spot markets. At the same time, there is also a reverse information flow happening in case of metals signifying price discovery in both futures and spot markets. Top Keywords Futures, Spot, Commodity Markets, Johansen Cointegration. Top |