1Professor, The Business School, University of Jammu, Jammu, J&K, India
2Assistant Professor, The Business School, Bhaderwah Campus, University of Jammu, Bhaderwah, J&K, India
*Corresponding author email id: sunil.tbs2010@gmail.com
Online published on 29 August, 2020.
The study focus to analyse the causality relationship between the spot and future price of spices i.e. Coriander, Jeera and Turmeric being traded on NCDEX. The causality linkage can be used for predicting the spot and future prices of the respective commodities which can further help to hedge price risk. The study will help to understand the price discovery behaviour by analysing price signals emitted by the spot and futures markets of spices being traded in National Commodity and Derivative Exchange of India (NCDEX) by using daily spot and futures prices of spices from 1 January 2005 to 31 December 2018. A spectrum of econometric models and statistical tools has been used to analyse the price discovery mechanism in spices like Augmented Dickey-Fuller Test (ADF), Phillips-Perron (PP) Test, Johansen Co-integration Test, VECM Granger Causality and Ordinary Least Square (OLS). The study predicts the existence of a long-run association between the spot and futures prices in the spices taken for the study. VECM Granger Causality method reveals a shortrun bi-directional causality relationship between the spot and futures prices of coriander and jeera where both the markets are found to be equally efficient and react to the new information and innovation simultaneously. A uni-directional causality has been predicted in turmeric from future to spot where the future market is found to be dynamic and leads to price variations in spot prices. The study reveals that in turmeric 96% variation in spot price is explained by future price. The study is an original work of the authors.
Causality, Risk management, Derivatives, Price discovery, Stationary, Cointegration
