Econometric Analysis of Spot and Futures Indices of MCX

Testing the market efficiency and the effective functioning of the price discovery process of the futures markets is one of the major areas of interest for both academicians and industry leaders. Several studies has examined the co-movement or co-integration of two or more indices of stock prices by using various econometric models. The present paper examines the historical performance of various indices published by Multi-Commodity Exchange of India and also explores the relationship between the spot and futures market. Descriptive Statistics were used to analyze the various characteristics of the time series data relating to the spot and futures indices of MCX. For the purpose of ascertaining the relationship between the Spot and the Futures commodity prices Granger Causality tests were performed and these tests have revealed the there is proof of informational flow between spot and futures market. The study reveals that certain commodities such as Energy, Agri and Metal have information flow between Spot and Futures market. In some cases there is bi-directional flow of information and in some other cases there is only uni-directional flow of information. To generalize the results further studies have to be made by comparing the data from various commodity exchanges within India and commodity exchanges across some of the emerging economies.