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1 – 10 of over 16000Manogna R.L. and Aswini Kumar Mishra
Market efficiency leads to transparent and fair price discovery of commodity markets, thus enhancing the value chain for competitive benefit. The purpose of this paper is to…
Abstract
Purpose
Market efficiency leads to transparent and fair price discovery of commodity markets, thus enhancing the value chain for competitive benefit. The purpose of this paper is to investigate the market efficiency of Indian agricultural commodities at spot, futures and mandi markets apart from exploring price risk management in these markets.
Design/methodology/approach
This study uses Johansen co-integration, vector error correction model and granger causality for analyzing market efficiency of the nine most liquid agricultural commodities across three markets, namely, spot, futures and mandi. All these nine commodities are traded on National Commodity and Derivatives Exchange.
Findings
The statistical results indicate price discovery exists in the mandi market and spot market leading to futures prices. Mandi price returns are seen to negatively influence futures returns in the case of cotton seed, guar seed and spot returns in the case of jeera, coriander and chana. For castor seed, the three markets are seen to have no long run relationship. The results of Granger causality reveal short run relationship between all the three markets in the case of soybean seed and coriander. In these commodities, prices in all three markets are capable of predicting the prices in the other markets. For the case of cottonseed, Rape Mustard seed, jeera, guar seed, the results indicate unidirectional causality between the mandi markets and the other two markets.
Research limitations/implications
These results shall facilitate policymakers to explore intervention through integrated agri-platform (IAP) in price discovery and market efficiency.
Practical implications
The results of this study are useful in understanding the price discovery of mandi markets and its role in the spot and futures market. Agricultural commodities price discovery depends upon the integration of all these three markets. Introduction of IAP as described in the paper shall facilitate price risk management apart from improving the efficiency of price discovery.
Originality/value
To the best of the knowledge, this is the first study considering mandi, spot and futures prices in the price discovery process in India. In addition, this study found the role of mandi markets in serving the economic function of price discovery and price risk management. Hence, suggests for policy intervention for Indian agricultural commodities to manage price risk.
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Bart Frijns, Aaron Gilbert and Alireza Tourani-Rad
The purpose of this paper is to investigate price discovery for cross-listed stocks on the New Zealand Exchange (NZX) and the Australian Stock Exchange (ASX) and find out the…
Abstract
Purpose
The purpose of this paper is to investigate price discovery for cross-listed stocks on the New Zealand Exchange (NZX) and the Australian Stock Exchange (ASX) and find out the determinants of price discovery between the two markets.
Design/methodology/approach
Gonzalo Granger Component Shares and Hasbrouck Information Shares were estimated annually for a sample of 19 cross-listed stocks between 1998 and 2012. Then dynamic panel regressions were used to investigate the driving factors behind price discovery between the NZX and ASX.
Findings
Strong downward trends were observed in the contribution to price discovery of the NZX, both for New Zealand firms cross-listing on the ASX and Australian firms cross-listing on the NZX. While in the early years in our sample period, price discovery is dominated by the home market, by 2012, 50 per cent of price discovery for New Zealand firms takes place on the ASX, and the NZX acts as a satellite market for Australian firms. It was also observed that the NZX share of trading activity has a strong positive effect on the NZX level of price discovery, while there is a negative relationship with relative bid–ask spreads.
Practical implications
Results suggest that the importance of the NZX relative to the ASX with regards to price discovery is decreasing over time. Given the importance of price discovery for exchanges, such a finding is concerning for the NZX. The determinants of price discovery found in the paper, such as relative volume and spreads, do, however, offer some guidance on how the NZX could regain price discovery.
Originality/value
This paper offers a longer and broader analysis of price discovery between the NZX and ASX, two highly integrated markets, and extends previous work by exploring the drivers of price discovery in a panel setting.
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Sivakumar Sundararajan and Senthil Arasu Balasubramanian
This study empirically explores the intraday price discovery mechanism and volatility transmission effect between the dual-listed Indian Nifty index futures traded simultaneously…
Abstract
Purpose
This study empirically explores the intraday price discovery mechanism and volatility transmission effect between the dual-listed Indian Nifty index futures traded simultaneously on the onshore Indian exchange, National Stock Exchange (NSE) and offshore Singapore Exchange (SGX) and its spot market by using high-frequency data.
Design/methodology/approach
This study applies the vector error correction model to analyze the lead-lag relationship in price discovery among three markets. The contributions of individual markets in assimilating new information into prices are measured using various measures, Hasbrouck's (1995) information share, Lien and Shrestha's (2009) modified information share and Gonzalo and Granger's (1995) component share. Additionally, the Granger causality test is conducted to determine the causal relationship. Lastly, the BEKK-GARCH specification is employed to analyze the volatility transmission.
Findings
This study provides robust evidence that Nifty futures lead the spot in price discovery. The offshore SGX Nifty futures consistently ranked first in contributing to price discovery, followed by onshore NSE Nifty futures and finally by the spot. Empirical results also show unidirectional causality and volatility transmission from Nifty futures to spot, as well as bidirectional causal relationship and volatility spillovers between NSE and SGX Nifty futures. These novel findings provide fresh insights into the informational efficiency of the dual-listed Indian Nifty futures, which is distinct from previous literature.
Practical implications
These findings can potentially help market participants, policymakers, stock exchanges and regulators.
Originality/value
Unlike previous studies in this area, this is the first study that empirically examines the intraday price discovery mechanism and volatility spillover between the dual-listed futures markets and its spot market using 5-min overlapping price data and trivariate econometric models.
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Transparent and fair price discovery is essential to commodity market participants in the trade value chain for competitive benefit. The purpose of this paper is to investigate…
Abstract
Purpose
Transparent and fair price discovery is essential to commodity market participants in the trade value chain for competitive benefit. The purpose of this paper is to investigate the price discovery of Indian cardamom at e-auction, spot and futures markets in addition to the existence of the day of the week effect at e-auction apart from exploring a novel price risk management framework.
Design/methodology/approach
This study used Johansen co-integration, vector error correction model, Granger causality and regression with dummy variables to understand a day of the week effect in high-value agri-commodity of cardamom e-auction prices. These price data were based on authenticated sources of Spices Board India and Multi Commodity Exchange of India Ltd.
Findings
The statistical results indicate price discovery exists in the e-auction market and it leads to spot and futures prices. cardamom e-auction prices are negatively related to cardamom futures and positively related to spot prices. It also finds the non-existence of the day of the week effect in the high-value cardamom e-auction system in India. The study revealed that a cardamom e-auction is more active in price discovery than a cardamom futures contract.
Research limitations/implications
These results shall facilitate policymakers to explore intervention of online forward market mechanism at the national level to ensure price discovery and market efficiency. However, the study did not explore reasons for the non-equilibrium of a cardamom futures contract with spot and e-auction market.
Practical implications
The results of this study are useful in understanding the price discovery of cardamom e-auction and its role in the spot and futures market. Cardamom price discovery depends upon the e-auction system; any change of auction policy shall be binding on Indian cardamom prices. The introduction of an online forward market mechanism as described in the paper shall facilitate price risk management apart from improving the efficiency of price discovery.
Originality/value
This is the first study considering cardamom e-auction, spot and futures prices in the price discovery process in India. Statistical results of a day of the week effect clearly show no significant volatility of cardamom prices during the week. Besides, this study did not find the role of cardamom futures contracts intended to serve the economic function of price discovery and price risk management. Hence, suggests policy intervention for implementing an online Forward Market mechanism for Indian cardamom to ensure market efficiency and manage price risk.
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Manogna R L and Aswini Kumar Mishra
Price discovery and spillover effect are prominent indicators in the commodity futures market to protect the interest of consumers, farmers and to hedge sharp price fluctuations…
Abstract
Purpose
Price discovery and spillover effect are prominent indicators in the commodity futures market to protect the interest of consumers, farmers and to hedge sharp price fluctuations. The purpose of this paper is to investigate empirically the price discovery and volatility spillover in Indian agriculture spot and futures commodity markets.
Design/methodology/approach
This study uses Granger causality, vector error correction model (VECM) and exponential generalized autoregressive conditional heteroskedasticity (EGARCH) to examines the price discovery and spillover effects for nine most liquid agricultural commodities in spot and futures markets traded on National Commodity and Derivatives Exchange (NCDEX).
Findings
The VECM results show that price discovery exists in all the nine commodities with futures market leading the spot in case of six commodities, namely soybean seed, coriander, turmeric, castor seed, guar seed and chana. Whereas in case of three commodities (cotton seed, rape mustard seed and jeera), price discovery takes place in the spot market. The Granger causality tests indicate that futures markets have stronger ability to predict spot prices. Supporting these, the results from EGARCH volatility test reveal that there exist mutual spillover effects on futures and spot markets. Thus, it could be inferred that futures market is more efficient in price discovery of agricultural commodities in India.
Research limitations/implications
These results can help the market participants to benefit by hedging out the uncertainty and the policymakers to design futures contracts to improve the efficiency of the agricultural commodity derivatives market.
Practical implications
The findings provide fresh view on lead–lag relationship between future and spot prices using the latest data confirming that futures market indeed is dominant in price discovery.
Originality/value
There are very few studies that have explored the efficiency of the agricultural commodity spot and futures markets in India using both price discovery and volatility spillover in a detailed manner, especially at the individual agriculture commodity level.
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Benjamin Clapham and Kai Zimmermann
The purpose of this paper is to study price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on multiple…
Abstract
Purpose
The purpose of this paper is to study price discovery and price convergence in securities trading within a fragmented market environment where stocks are traded on multiple venues. The results provide novel empirical insights questioning the generalizability of the current literature and aim to expand the understanding of price determination in a fragmented market microstructure.
Design/methodology/approach
This paper provides an empirical data analysis based on an event study methodology. The authors applied Thomson Reuters Tick History data covering German blue chip stocks listed on multiple venues in 2009 and 2013. Different time aggregations up to one second are applied to provide an in-depth analysis.
Findings
The paper empirically discovers a persistent price leader-follower relationship not only during intraday auctions but also in subsequent continuous trading. The authors found that trading on alternative venues instantly dries out in case the dominant market switches to a call auction. In these situations, alternative markets await and adopt the official price signal of the dominant market although prices on alternative venues still indicate a certain extent of price discovery. This phenomenon remains persistent at different levels of market fragmentation, indicating that alternative trading venues fully accept the price leadership role of the dominant market, no matter their own market share.
Originality/value
This paper provides an innovative empirical setup to analyze price co-movement and convergence based on high-frequent data. Further, the results provide novel and robust insights into the price determination process in fragmented markets that clarify the role of price follower and price leader.
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Sanjay Mansabdar, Hussain C. Yaganti and Sankarshan Basu
Embedded options can create asymmetries in information impounded by cash and futures markets, causing errors in price discovery estimation. This paper aims to investigate the…
Abstract
Purpose
Embedded options can create asymmetries in information impounded by cash and futures markets, causing errors in price discovery estimation. This paper aims to investigate the impact of embedded location options on measures of price discovery.
Design/methodology/approach
Various price discovery metrics are computed using observed futures prices that contain embedded location options and cash prices for Chana. Prices of a futures contract that contains no options using observed futures prices and estimates of location option value are synthesized. The price discovery measures are recomputed using synthetic option-adjusted futures contract prices and cash prices, and changes in these measures are attributed to the impact of the embedded location option.
Findings
If the presence of the location option is ignored, futures appear to dominate price discovery. Once the location option is adjusted for, cash markets are found to dominate price discovery.
Research limitations/implications
The lack of complete time-series data from the exchange for multiple commodities allows only limited empirical evidence for generalizing conclusions.
Practical implications
This paper highlights that regulators, exchanges and policymakers in India need to revisit delivery specifications of agricultural commodity futures contracts to enhance their utility from a price discovery perspective.
Originality/value
This work shows that ignoring the presence of embedded options can cause significant errors in price discovery assessment of agricultural futures contracts, particularly in heterogenous cash markets.
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Jun Chen, Alireza Tourani-Rad and Ronghua Yi
The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample…
Abstract
Purpose
The purpose of this paper is to investigate the impact of short selling and margin trading on the price discovery and price informativeness of cross-listed firms, using a sample of Chinese firms listed on the China and Hong Kong stock exchanges.
Design/methodology/approach
The sample consists of 67 Chinese cross-listed firms on A-share and H-share markets out of which 18 firms are allowed to be sold short/ traded on margin since March 2010. Using pre- and post-event period, the authors compare and contrast various market microstructure variables. The contributions of the home (A-share) and overseas (H-share) markets to the incorporation of new information into prices are calculated following the permanent-transitory approach of Gonzalo and Granger (1995) as well as the adverse selection component of Lin et al. (1995).
Findings
The findings indicate that for the group of Chinese cross-listed firms that are not allowed to be sold short or bought on margin, the home (A-share) market contributes more to the price discovery process over time. However, for the group of cross-listed firms that are eligible for short selling and margin trading, the authors observe no significant difference in the contribution of either A- or H-share markets to the price discovery. The contribution of home market for these firms is even lower around the announcement of major events. The authors further find that while the short sale activities appears to be informative, measured by the adverse selection (AS) component of spread, on the whole they have not led the A-share markets to be more informative.
Research limitations/implications
The sample of cross-listed Chinese firms that are allowed to be sold short or bought on margin are rather limited. Hence, the results should be read with some caution.
Practical implications
The removal of short selling constraints appears to improve the contribution of the respective markets to the process price discovery, in the case for larger cross-listed firms.
Originality/value
The authors shed new lights on how the introduction of short selling and margin trading impacts on the price discovery of the Chinese cross-listed firms. A further contribution of the study is the use of high frequency data, while most of the previous studies on the Chinese markets use daily data.
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Michael Aitken, Frederick H. deB., Thomas H. McInish and Kathryn Wong
The purpose of this paper is to investigate the cross‐sectional determinants of the role of the underwriter in aftermarket price discovery.
Abstract
Purpose
The purpose of this paper is to investigate the cross‐sectional determinants of the role of the underwriter in aftermarket price discovery.
Design/methodology/approach
The paper estimates Gonzalo‐Granger common factor weights across underwriter and non‐underwriter execution channels in the IPO aftermarket and investigates the cross‐sectional determinants of these CFWs.
Findings
The first novel result is that verifiable facts are not a substitute for, but a complement to, underwriter certification and advice. Specifically, the underwriter's contribution to price discovery increases with the number of supplier and customer contracts reported in the prospectus. Second, the underwriter's role in price discovery declines when the IPO is first in a new technology or product space. These findings indicate that the verification process, not de novo information production, is the key function of the underwriter.
Research limitations/implications
Research design is applicable to IPOs in the USA and elsewhere.
Originality/value
Previous research examining IPO aftermarket trading has been largely limited to the first day of trading. The paper contributes to the small but growing literature that examines the role of the underwriter beyond this period.
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Mantu Kumar Mahalik, Debashis Acharya and M. Suresh Babu
– The purpose of this paper is to investigate empirically the price discovery and volatility spillovers in Indian spot-futures commodity markets.
Abstract
Purpose
The purpose of this paper is to investigate empirically the price discovery and volatility spillovers in Indian spot-futures commodity markets.
Design/methodology/approach
The study has used four futures and spot indices of Multi-Commodity Exchange, Mumbai. The study also employs vector error correction model (VECM) and bivariate exponential Garch model (EGARCH) to analyze the price discovery and volatility spillovers in Indian spot-futures commodity market.
Findings
The VECM shows that agriculture future price index (LAGRIFP), energy future price index (LENERGYFP) and aggregate commodity index (LCOMDEXFP) effectively serve the price discovery function in the spot market implying that there is a flow of information from future to spot commodity markets but the reverse causality does not exist. There is no cointegrating relationship between metal future price index (LMETALFP) and metal spot price index (LMETALSP). Besides the bivariate EGARCH model indicates that although the innovations in one market can predict the volatility in another market, the volatility spillovers from future to the spot market are dominant in the case of LENERGY and LCOMDEX index while LAGRISP acts as a source of volatility toward the agri-futures market.
Research limitations/implications
The results are aggregate in nature. Further study at disaggregated level will provide further insights on behavior of specific commodity prices and the price discovery process.
Originality/value
The paper provides useful information about the evolution and structures of futures commodity trading in India, related literature and relevant methodology concerning the hypotheses.
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