Wavelet-based analysis of guar futures in India: did we kill the golden goose?
Journal of Agribusiness in Developing and Emerging Economies
ISSN: 2044-0839
Article publication date: 11 December 2020
Issue publication date: 1 February 2022
Abstract
Purpose
Guar Gum (GG) is used in Shale oil exploration. Excessive price increase in the Guar futures market had a spillover impact on Guar spot prices and affected Guar export from India as Shale oil producers started exploring alternate sources. In this paper, the role of excessive speculation in the futures market, and its adverse impact on the guar-based agri-business ecosystem have been empirically explored.
Design/methodology/approach
Volatility spillover dynamics between WTI crude oil and Guar futures have been explored using bivariate-Granger Causality, BEKK–GARCH models with Wavelet multi-resolution analysis. The wavelet-based models capture the multi-scale features of mean and volatility spillover to identify the effect of heterogenous investment behavior in the time and frequency domain.
Findings
The results provide evidence that excessive speculation in futures markets increases spot market volatility. The results also suggest that the excess presence of short-term investors can destabilize the futures market.
Research limitations/implications
The purpose of the commodity futures market is to support price discovery and risk management. However, speculative practices can destabilize these purposes leading to the failure of the business ecosystem.
Originality/value
The novelty of this paper is twofold. First, it explores the economic linkages between the spot and futures market and tests whether the presence of heterogeneous traders affects the economic linkages. Second, it models the impact of short-term speculative investment on the destabilization of the spot market.
Keywords
Citation
Bandyopadhyay, A., Bhowmik, S. and Rajib, P. (2022), "Wavelet-based analysis of guar futures in India: did we kill the golden goose?", Journal of Agribusiness in Developing and Emerging Economies, Vol. 12 No. 1, pp. 104-125. https://doi.org/10.1108/JADEE-09-2020-0200
Publisher
:Emerald Publishing Limited
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