Price Volatility and Discovery in Indian Castor NCDEX Futures Market

This paper has analysed the futures and spot price volatility and discovery in castor by collecting data for the period July, 2004 to January, 2014 from the website of NCDEX (National Commodity Derivative Exchange of India Ltd.). The analysis of price volatility has revealed its persistence in spot prices as the sum of the coefficient of ARCH-Auto-Regressive Conditional Heteroskedasticity and GARCH–Generalized Auto-Regressive Conditional Heteroskedasticity were estimated to be close to one (1.01) and remained so for a longer period of time, which further inferred the usefulness of futures trading. The mean value of spot prices has been found less than of the futures prices for castor crop. The distribution of spot prices has been found comparatively less skewed than futures prices. The ADF (Augmented Dickey Fuller) test used to check the stationarity of the time series data, followed the stationarity pattern at the first difference. The spot and futures prices were found to be co-integrated in both short and long-run, as assessed through Johansen Co-integration test and Error Correction Models. The result of Granger test has detected unidirectional Granger causality from futures to spot markets, which indicates its better hedging efficiency for farmers and exporters to mitigate the price risk.