Modelling volatility in futures and spot returns

Risk and return go hand in hand; a general business conception is more risk more reward. Reward is the return earned by an investor and risk is associated with variability of the return, it is also known as volatility. Volatility has always been the concern of academicians, traders and policy makers. Present study is an attempt to model volatility in futures and spot return of copper. Futures and spot return for a period of five years, ranging from 1st April 2014 to 31st March 2019, has been analysed. Volatility in both the series has been found to be time varying. To capture this time varying feature ofvolatility, GARCH models have been applied, but volatility in futures return could not be captured by applying simple GARCH model, so it was modelled by applying asymmetric model, whereas volatility in spot return could be modelled by applying simple GARCH model. Results of the study also reveal that volatility is more persistent in spot return than in futures return. It was also found that a negative shock of previous period has more impact on volatility than a positive shock of same magnitude.