Market efficiency and price risk management of agricultural commodity prices in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Manogna R.L. ◽  
Aswini Kumar Mishra
Keyword(s):  
Risk Management ◽  
Market Efficiency ◽  
Price Discovery ◽  
The Other ◽  
Price Risk ◽  
Futures Prices ◽  
Agricultural Commodities ◽  
Content Type ◽  
Price Risk Management ◽  
Guar Seed

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.

scholarly journals Price discovery and market efficiency of cardamom in India

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
A.N. Vijayakumar
Keyword(s):  
Risk Management ◽  
Market Efficiency ◽  
Price Discovery ◽  
Market Mechanism ◽  
Price Risk ◽  
Content Type ◽  
Futures Contract ◽  
Forward Market ◽  
Day Of The Week ◽  
Price Risk Management

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.

scholarly journals Future Trading in India and Commodity Price Risk Management: A Pragmatic Study

2014 ◽  
Vol 5 (1) ◽  
pp. 75
Author(s):  
Nirmala K. Reddy ◽  
B. M. Chandra Shekar ◽  
R. Munilakshmi
Keyword(s):  
Risk Management ◽  
Price Discovery ◽  
Commodity Prices ◽  
Commodity Price ◽  
Price Risk ◽  
Future Market ◽  
Informational Efficiency ◽  
Futures Trading ◽  
Economic Significance ◽  
Price Risk Management

Commodity future markets in India are experiencing unparalleled growth and have attained critical economic significance in the last one decade. On the other hand, instability in commodity prices is becoming an issue of great concern not only for India, but all over the world impacting income, economic growth and a poor adversely. Ever-increasing demand and supply side constraints are adding to the upsurge in prices of metal and agricultural commodities, affecting manufacturers and consumers at the same time. Moreover, farmer participation in the market has been very poor. So the price risk management in commodity is not a cliché but a necessity for the development of future market. In an agriculture based economy like India, commodity derivatives are expected to play a pivotal role in the process of price discovery and risk management. The price discovery in futures markets would not be effective unless spot markets are regulated and integrated. The present paper aims to analyse the performance of futures trading in improvising commodity price risk management in India. The study employs co-integration technique to study the existence of long-term relationship between the spot and future prices of agricultural and metal commodities traded in Indian commodity exchanges. The study also explores the volatility aspect in spot and future prices to test the informational efficiency of the contracts and comment on their suitability for hedging activities. Based on the results, propositions would be made on the nature of speculative conditions and offer suggestions for improvement futures trading in commodities.

Hedging as a Method of Price Risk Management

2019 ◽  
Vol 8 (4) ◽  
Author(s):  
Lilia Mirgaziyanovna Yusupova ◽  
Irina Arkadevna Kodolova ◽  
Tatyana Viktorovna Nikonova ◽  
Bulat Talgatovich Yakupov
Keyword(s):  
Risk Management ◽  
Price Risk ◽  
Price Risk Management

Does Commodity Derivatives Function Effectively? A lengthy Discussion

2021 ◽  
pp. 227797522098574
Author(s):  
Bhabani Sankar Rout ◽  
Nupur Moni Das ◽  
K. Chandrasekhara Rao
Keyword(s):  
Price Discovery ◽  
Spot Market ◽  
Futures Market ◽  
The Other ◽  
Volatility Spillover ◽  
Agricultural Commodities ◽  
Commodity Derivatives ◽  
Derivative Market ◽  
Negative Shock ◽  
Lengthy Discussion

The present work has been designed to intensely investigate the capability of the commodity futures market in achieving the aim of price discovery. Further, the downside of the cash and futures market and transfer of the risk to other markets has also been studied using VaR, and Bivariate EGARCH. The findings of the work point that the metal commodity derivative market helps in the efficient discovery of price in the spot market except for nickel. But, in the case of the agricultural commodities, the spot is found to be leading and thus there is no price discovery except turmeric. On the other hand, the volatility spillover is bidirectional for both agri and metal commodities except copper, where volatility spills only from futures to spot. Further, the effect of negative shock informational bias differs from commodity to commodity, irrespective of metal or agriculture.

Construction material supply risk management using Asian option contracts: the case of a pipeline project

2020 ◽  
Vol 27 (10) ◽  
pp. 3395-3414
Author(s):  
Mohammad Vahdatmanesh ◽  
Afshin Firouzi
Keyword(s):  
Risk Management ◽  
Scenario Analysis ◽  
Price Risk ◽  
Asian Option ◽  
Steel Pipeline ◽  
Content Type ◽  
Price Fluctuations ◽  
Option Contracts ◽  
Pipeline Project ◽  
Total Price

PurposeSteel price uncertainty exposes pipeline projects that are inherently capital intensive to the risk of cost overruns. The current study proposes a hedging methodology for tackling steel pipeline price risk by deploying Asian option contracts that address the shortcomings of current risk mitigation strategies.Design/methodology/approachA stepwise methodology is introduced, which uses a closed-form formula as an Asian option valuation method for calculating this total expenditure. The scenario analysis of three price trends examines whether or not the approach is beneficial to users. The sensitivity analysis then has been conducted using the financial option Greeks to assess the effects of changes in volatility in the total price of the option contracts. The total price of the Asian options was then compared with those of the European and American options.FindingsThe results demonstrate that the Asian option expenditure was about 1.87% of the total cost of the case study project. The scenario analysis revealed that, except for when the price followed a continuous downward pattern, the use of this type of financial instrument is a practical approach for steel pipeline price risk management.Practical implicationsThis approach is founded on a well-established financial options theory and elucidates how pipeline project participants can deploy Asian option contracts to safeguard against steel price fluctuations in practice.Originality/valueAlthough the literature exists about the theory and application of financial derivative instruments for risk management in other sectors, their application to the construction industry is infrequent. In the proposed methodology, all participants involved in fixed price pipeline projects readily surmount the risk of exposure to material price fluctuations.

Price risk management using forward contracts: the case of farmers in Pakistan

2018 ◽  
Vol 9 (3) ◽  
pp. 241 ◽  
Author(s):  
Shahab E. Saqib ◽  
John K.M. Kuwornu ◽  
Ubaid Ali ◽  
Sanaullah Panezai ◽  
Irfan Ahmad Rana
Keyword(s):  
Risk Management ◽  
Price Risk ◽  
Forward Contracts ◽  
Price Risk Management

scholarly journals Factors affecting the use of price risk management tools by large commercial maize producers in South Africa

2000 ◽  
Vol 3 (1) ◽  
pp. 75-96 ◽  
Author(s):  
A. Brown ◽  
G. F. Ortmann ◽  
M. A.G. Darroch
Keyword(s):  
Risk Management ◽  
Formal Education ◽  
Crop Insurance ◽  
Ordinary Least Squares ◽  
Price Risk ◽  
Least Squares Regression ◽  
Sources Of Information ◽  
Management Tools ◽  
Complementary Method ◽  
Price Risk Management

Ordinary Least Squares regression was used to examine what characteristics affect the use of maize price risk management tools by a sample of large commercial South African maize producers in 1998. The use of maize storage facilities, off-farm employment, formal crop insurance, length of formal education of operators and the proportion of farm turnover from maize, all positively influence producers' use of these tools. Crop insurance thus appeared to be a complementary method of risk management. In contrast to previous United States studies, operators' self-rated score of marketing management ability was negatively related to the use of price risk management tools. Maize marketing seminars and other sources of information on managing price risk would reduce adoption costs and encourage broader producer participation

Contrasting cybersecurity implementation frameworks (CIF) from three countries

2019 ◽  
Vol 27 (3) ◽  
pp. 373-392
Author(s):  
Adenekan Dedeke ◽  
Katherine Masterson
Keyword(s):  
Risk Management ◽  
Design Methodology ◽  
Document Analysis ◽  
Decision Makers ◽  
The Other ◽  
Management Approach ◽  
Content Type ◽  
Assessment Matrix ◽  
Comprehensive Framework ◽  
Country Specific

Purpose This paper aims to explore the evolution of a trend in which countries are developing or adopting cybersecurity implementation frameworks that are intended to be used nationally. This paper contrasts the cybersecurity frameworks that have been developed in three countries, namely, Australia, UK and USA. Design/methodology/approach The paper uses literature review and qualitative document analysis for the study. The paper developed and used an assessment matrix as its coding protocol. The contents of the three cybersecurity frameworks were then scored to capture the degree to which they covered the themes/items of the cybersecurity assessment matrix. Findings The analysis found that the three cybersecurity frameworks are oriented toward the risk management approach. However, the frameworks also had notable differences with regard to the security domains that they cover. For example, one of the frameworks did not offer guidelines with regard to what to do to respond to attacks or to plan for recovery. Originality/value The results of this study are beneficial to policymakers in the three countries targeted, as they are able to gain insights about how their cybersecurity frameworks compares to those of the other two countries. Such knowledge would be useful as decision-makers take steps to improve their existing frameworks. The results of this study are also beneficial to executives who have branches in all three countries. In such cases, security professionals could deploy the most comprehensive framework across all three countries and then extend the deployment in each location to meet country-specific requirements.

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