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Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India

Saji Thazhugal Govindan Nair (School of Management Studies, Cochin University of Science and Technology, Kochi, India)

Indian Growth and Development Review

ISSN: 1753-8254

Article publication date: 2 June 2021

Issue publication date: 15 June 2021

208

Abstract

Purpose

This paper aims to investigate price responses and volatility spillovers between commodity spot and futures markets. The study ultimately seeks the evidence-based claims on the efficiency of the long run and short run horizontal price transmissions from futures markets to spot markets.

Design/methodology/approach

This study used the most recent daily price series of pepper, cardamom and rubber, during the period 2004–2019, use “cointegration-ECM-GARCH framework” and verify the persisting validity of the “expectancy theory” of commodity futures pricing.

Findings

The results offer overwhelming evidence of futures market dominance in the price discoveries and volatility spillovers in spot markets. However, this paper finds asymmetric responses between cash and futures prices across markets. The hedging efficiency of futures contracts is commodities specific’ where spices futures are more efficient than the rubber futures.

Practical implications

The study passes on vital information to the producers and traders of spices and rubber who have a potential interest in the use of futures contracts to make profits from arbitrage between futures and cash markets.

Originality/value

The paper is unique in terms of understanding asymmetric price linkages in markets for plantation crops.

Keywords

Acknowledgements

The author is highly grateful to the anonymous referees of the journal for their extremely valid suggestions to improve the quality of this research paper.

Citation

Thazhugal Govindan Nair, S. (2021), "Measuring volatility spillovers and asymmetric responses of Agri commodity prices: evidence from spices and rubber futures in India", Indian Growth and Development Review, Vol. 14 No. 2, pp. 242-267. https://doi.org/10.1108/IGDR-10-2020-0147

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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