Indian Journal of Finance

Open Access Open Access  Restricted Access Subscription Access

Volatility Spillover in the Indian Commodity Market : A Comparative Assessment of Various Commodity Segments


Affiliations
1 Research Scholar (Corresponding Author), Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar - 125 001, Haryana, India
2 Professor, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar - 125 001, Haryana, India

   Subscribe/Renew Journal


Purpose : The present study concentrated on analyzing the volatility spillover effect between spot and futures returns of eight commodities traded on India’s multi-commodity exchange (MCX). This study intended to compare the volatility spillover effect within spot and futures returns of four commodity segments, such as metal, energy, bullion, and agriculture, to determine whether the volatility spillover effect was similar in all categories or not. Methodology : The sample of the study included two commodities from each category. The closing spot and futures prices were extracted from MCX India Ltd.’s authenticated sources for the period spanning from January 2009 – March 2020 for all sampled commodities except cotton (for cotton, September 2011 – March 2020). The present study used the EGARCH model to study the volatility transmission between markets. Findings : The outcomes of the study indicated that there existed a volatility spillover effect in all sampled commodities. Also, the outcomes revealed that the volatility spillover effect in all segments was quite different from each other. Practical Implications : A comparative assessment of the volatility spillover mechanism existing between the two markets of various groups of commodities will be advantageous for investors, traders, and portfolio managers in selecting the most profitable group of commodities for investment, trading, and portfolio optimization. Originality/Value : In India, there have been very few empirical studies that compare the comparative aspects of spillover effects across various commodity segments.

Keywords

Volatility Spillover, Agricultural Commodities, Metal Commodities, Energy Commodities, Bullion Commodities, EGARCH

JELClassification Codes : C10, G13, G17

Paper Submission Date : June 14, 2022 ; Paper sent back for Revision : January 23, 2023 ; Paper Acceptance Date : January 30, 2023 ; Paper Published Online : February 15, 2023

User
Subscription Login to verify subscription
Notifications
Font Size

  • Arora M. & Chander R. (2016). Price efficiency and volatility in agri commodities market in India: An empirical investigation. Amity Journal of Finance, 1(2), 83–99. https://doi.org/10.13140/RG.2.2.21238.91208

  • Babshetti V. & Basanna P. (2018). An analysis of existence of convergence between spot and futures prices in selected agricultural commodities. Indian Journal of Research in Capital Markets, 5(4), 7–17. https://doi.org/10.17010/ijrcm/2018/v5/i4/141542

  • Barreto B. E. & Ramesh B. (2018). Price discovery and volatility spillover in metal commodity market in India. Indian Journal of Accounting, 50(1), 97–106.

  • Behera C. (2016). Price discovery and spill-over impact in the Indian commodity futures market: An empirical investigation into metal futures. International Journal of Innovative Research in Engineering & Management, 14(6), 4573–4586.

  • Chauhan A. K. Singh S. & Arora A. (2013). Market efficiency and volatility spillovers in futures and spot commodity market: The agricultural sector perspective. Samvad, 6(2), 61–84.

  • Dikshita & Singh H. (2019). Estimating and forecasting volatility using ARIMA model: A study on NSE, India. Indian Journal of Finance, 13(5), 37–51. https://doi.org/10.17010/ijf/2019/v13i5/144184

  • Engle R. F. (1982). Autoregressive conditional heteroscedasticity with estimates of the variance of United Kingdom inflation. Econometrica, 50(4), 987–1007. https://doi.org/10.2307/1912773

  • Gupta A. & Varma P. (2016). Impact of futures trading on spot markets: An empirical analysis of rubber in India. Eastern Economic Journal, 42, 373–386. https://doi.org/10.1057/eej.2014.64

  • Irfan M. & Hooda J. (2017). An empirical study of price discovery in commodities futures market. Indian Journal of Finance, 11(3), 41–57. https://doi.org/10.17010/ijf/2017/v11i3/111648

  • Joshi N. A. (2021). Volatility, open interest, and trading volume in Indian futures markets. Indian Journal of Finance, 15(11), 41–54. https://doi.org/10.17010/ijf/2021/v15i11/166831

  • Kaura R. Kishor N. & Rajput N. (2018). Volatility spillover between spot and futures market of highly traded commodities in India: The DCC-GARCH approach. Australian Journal of Business and Management Research, 5(9), 34–49. https://doi.org/10.52283/NSWRCA.AJBMR.20180509A04

  • Kaura R. Kishor N. & Rajput N. (2019). Arbitrage, error correction and causality:Case of highly traded agri cultural commodities in India.Indian Journal of Finance ,13(9), 7–21. https://doi.org/10.17010/ijf/2019/v13i9/147095

  • Kavussanos M. G. & Visvikis I. D. (2004). Market interactions in returns and volatilities between spot and forward shipping freight markets. Journal of Banking & Finance , 28(8), 2015–2049. https://doi.org/10.1016/j.jbankfin.2003.07.004

  • Kim K. & Lim S. (2019). Price discovery and volatility spillover in spot and futures markets: Evidences from steel related commodities in China . Applied Economics Letters, 26(5), 351–357. https://doi.org/10.1080/13504851.2018.1478385

  • Kumar S. Singh G. & Kumar A. (2022). Volatility spillover among prices of crude oil, natural gas, exchange rate, gold, and stock market: Fresh evidence from exponential generalized autoregressive conditional heteroscedastic model analysis.Journal of Public Affairs,22(4),e2594. https://doi.org/10.1002/pa.2594

  • Malhotra M. & Sharma D. K. (2016). Volatility dynamics in oil and oilseeds spot and futures market in India. Vikalpa, 41(2), 132–148. https://doi.org/10.1177/0256090916642686

  • Manogna R. L. & Mishra A. K. (2020). Price discovery and volatility spillover: An empirical evidence from spot and futures agricultural commodity markets in India. Journal of Agribusiness in Developing and Emerging Economies, 10(4), 447–473. https://doi.org/10.1108/JADEE-10-2019-0175

  • Mathew L. Devan K. P. & Johnson J. (2022). Indian commodity futures market and volatility: An empirical analysis.Nile Journal of Business and Economics,7(19),39–53. https://dx.doi.org/10.20321/nilejbe.v7i19.03

  • Mathew M. & Sulphey M. M. (2019). Financial innovation management of volatility spillovers at Indian gold futures market.Marketing and Management of Innovations,2,131–140. http://doi.org/10.21272/mmi.2019.2-12

  • Nelson D. B. (1991). Conditional heteroskedasticity in asset returns: A new approach. Econometrica, 59(2), 347–370. https://doi.org/10.2307/2938260

  • Nirmala S. & Deepthy K. (2018). Volatility modeling of commodity markets in India: Application of selected GARCH models. Indian Journal of Research in Capital Markets, 5(4), 27–37. https://doi.org/10.17010/ijrcm/2018/v5/i4/130137

  • Ranganath G. Venkatram R. & Mahendran K. (2017). Volatility spillover effects between futures and spot markets - Case of agricultural commodity derivatives in India. International Journal of Agricultural Science and Research, 7(4), 625–634. https://doi.org/10.24247/ijasraug201781

  • Ross S. A. (1989). Information and volatility: The no-arbitrage martingale approach to timing and resolution irrelevancy. The Journal of Finance, 44(1), 1–17. https://doi.org/10.2307/2328272

  • Rout B. S. Das N. M. & Rao K. C. (2019). Volatility spillover effect in commodity derivatives market: Empirical evidence through generalized impulse response function. Vision, 23(4), 374–396. https://doi.org/10.1177/0972262919850916

  • Rout B. S. Das N. M. & Rao K. C. (2021). Competence and efficacy of commodity futures market: Dissection of price discovery, volatility, and hedging. IIMB Management Review, 33(2), 146–155. https://doi.org/10.1016/j.iimb.2021.03.014

  • Seth N. & Sidhu A. (2021). Price discovery and volatility spillover for Indian energy futures market in the pre-and post-crisis periods.Indian Journal of Finance ,15(8),24–39. https://doi.org/10.17010/ijf/2021/v15i8/165816

  • Shihabudheen M. T. & Padhi P. (2010). Price discovery and volatility spillover effect in Indian commodity market. Indian Journal of Agricultural Economics, 65(1), 101–117.

  • Sonia & Narwal K.P. (2021). Price discovery and volatility spillover in India: An evidence from futures and spot base metals market. The Indian Journal of Commerce, 74(3), 24–39.

  • Srinivasan P. & Ibrahim P. (2012). Price discovery and asymmetric volatility spillovers in Indian spot-futures gold markets. International Journal of Economic Sciences and Applied Research, 5(3), 65–80.

  • Thenmozhi M. & Priya S. (2008). Volatility spillover in bullion and energy futures and spot markets. Journal of Emerging Financial Markets, 1(1), 85–108.


Abstract Views: 189

PDF Views: 0




  • Volatility Spillover in the Indian Commodity Market : A Comparative Assessment of Various Commodity Segments

Abstract Views: 189  |  PDF Views: 0

Authors

Sonia
Research Scholar (Corresponding Author), Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar - 125 001, Haryana, India
Karam Pal Narwal
Professor, Haryana School of Business, Guru Jambheshwar University of Science & Technology, Hisar - 125 001, Haryana, India

Abstract


Purpose : The present study concentrated on analyzing the volatility spillover effect between spot and futures returns of eight commodities traded on India’s multi-commodity exchange (MCX). This study intended to compare the volatility spillover effect within spot and futures returns of four commodity segments, such as metal, energy, bullion, and agriculture, to determine whether the volatility spillover effect was similar in all categories or not. Methodology : The sample of the study included two commodities from each category. The closing spot and futures prices were extracted from MCX India Ltd.’s authenticated sources for the period spanning from January 2009 – March 2020 for all sampled commodities except cotton (for cotton, September 2011 – March 2020). The present study used the EGARCH model to study the volatility transmission between markets. Findings : The outcomes of the study indicated that there existed a volatility spillover effect in all sampled commodities. Also, the outcomes revealed that the volatility spillover effect in all segments was quite different from each other. Practical Implications : A comparative assessment of the volatility spillover mechanism existing between the two markets of various groups of commodities will be advantageous for investors, traders, and portfolio managers in selecting the most profitable group of commodities for investment, trading, and portfolio optimization. Originality/Value : In India, there have been very few empirical studies that compare the comparative aspects of spillover effects across various commodity segments.

Keywords


Volatility Spillover, Agricultural Commodities, Metal Commodities, Energy Commodities, Bullion Commodities, EGARCH

JELClassification Codes : C10, G13, G17

Paper Submission Date : June 14, 2022 ; Paper sent back for Revision : January 23, 2023 ; Paper Acceptance Date : January 30, 2023 ; Paper Published Online : February 15, 2023


References





DOI: https://doi.org/10.17010/ijf%2F2023%2Fv17i2%2F169193