Volatility Spillover Effects between Futures and Spot Markets - Case of Agricultural Commodity Derivatves in India
Journal Title: International Journal of Agricultural Science and Research (IJASR) - Year 2017, Vol 7, Issue 4
Abstract
Volatility spillover is described as the extent to which the volatility in one market affects the other and it is necessary to model the relationship between the volatilities of both markets. The volatility spillovers reveal that future trading could intensify volatility in the underlying spot market, perhaps due to the larger trading program and the speculative nature of the future trading. National Commodity and Derivatives Exchange Limited (NCDEX), being the largest agricultural commodity futures trading platform was purposively selected among all the National Commodity Exchanges, functioning in the country. The sampling design used for the study is purposive sampling which consists of five agricultural commodity derivatives viz., refined soya oil, guar seed, chana, soya bean and castor seed which were traded on the NCDEX platform. The study was purely based on secondary data which was drawn from the official website of NCDEX. The data comprised of daily closing spot prices and futures prices, with near month (expiration month) maturity, pertaining to the sample agricultural commodity derivatives traded on the exchange. The period of study was from January 2004 to November 2016. The volatility spillover between futures and spot prices of the sample agricultural commodity derivatives has been analyzed using bivariate EGARCH (1, 1) model. The results indicated that, even though there was a bidirectional volatility spillover, the spillover from futures market to spot market was stronger in case of all the sample agricultural commodity derivatives. The presence of leverage effect in both futures and spot market was evident, only in case of soya bean and castor seed. As far as the volatility persistence was concerned, it was quite high in case of most of the sample commodities, except castor seed.
Authors and Affiliations
Ranganath G, R. Venkatram, K. Mahendran
Keywords
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