Testing price volume relationships for Indian commodity futures
Abstract
Purpose
The nature of price volume relationship in asset market has been an interesting subject in financial research as it reveals a very important aspect which has implications for market efficiency. The purpose of this paper is to examine price volume relationships in Indian commodity futures market.
Design/methodology/approach
There are two competing models in price volume relationship. Mixture of distribution hypothesis, suggesting a positive contemporaneous relationship and sequential information arrival hypothesis (SIH), suggesting a positive intertemporal causal relationship. Both are tested using correlation coefficient and Granger causality test with vector auto regressive methodology.
Findings
Though there exists contemporaneous correlation between volume and price change in some of the cases, but in general on the basis of the presence of Granger causality it follows that SIH is supported.
Research limitations/implications
As only three commodities futures have been studied in this paper, this study can be extended to include more number of commodities currently being traded so as to make it more exhaustive.
Practical implications
The research has been done with the data of MCX Gold, MCX Silver and MCX Crude. The results of causality suggest that inefficiency level is maximum in Silver which may be attributed to informational asymmetry.
Originality/value
The Indian commodity futures market is of very recent origin. Hence, very little research work has been undertaken in this space. The paper presents an assessment of the existence of informational asymmetry among the three commodity futures under the study.
Keywords
Citation
Biswas, S. and Rajib, P. (2011), "Testing price volume relationships for Indian commodity futures", Journal of Indian Business Research, Vol. 3 No. 2, pp. 117-131. https://doi.org/10.1108/17554191111132233
Publisher
:Emerald Group Publishing Limited
Copyright © 2011, Emerald Group Publishing Limited