Price Discovery Efficiency of Cotton Futures Market in India

The paper evaluates the efficiency of Indian cotton futures prices in predicting future spot prices during the period January, 2013 to December, 2015 using Vector Auto Regression (VAR) model and Granger causality tests. The Augmented Dickey-Fuller test was initially applied to check stationarity in futures and spot prices. The results shown that both the variables are stationary at level. The VAR model suggests that lag value of futures has more influence on spot price of cotton. The causality test has further indicated that futures markets have negligible ability to predict subsequent spot prices for cotton. The results of this study will be useful for various stakeholders who are actively participating in agricultural commodity markets.