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.

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.

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 ◽  
Commodity Price ◽  
Price Risk ◽  
Future Trading ◽  
Price Risk Management ◽  
Pragmatic Study

scholarly journals Discussion: Commodity Price Discovery: Problems That Have Solutions or Solutions That Are Problems

2009 ◽  
Vol 41 (2) ◽  
pp. 393-402 ◽  
Author(s):  
T. Randall Fortenbery
Keyword(s):  
Futures Markets ◽  
Market Failure ◽  
Commodity Prices ◽  
Price Volatility ◽  
Commodity Price ◽  
Price Risk ◽  
Futures Trading ◽  
Unacceptable Behavior ◽  
Commodity Price Volatility ◽  
Negative Impacts

This paper examines three invited papers focused on commodity prices. Public responses to high nominal commodity prices and perceived increases in price risk have ranged from attempts to assign blame, attempts to change contracting arrangements, and development of public policy that “protects“ the market from future occurrences of unacceptable behavior. Interestingly, a result of increased commodity price volatility has suggested that futures markets no longer “work.“ This is ironic given that futures markets initially came into existence as tools for managing the negative impacts of commodity price risk. In response to perceptions of market failure some are looking for strategies to regulate the who and how of futures trading.

Price risk management by using dynamic hedging based on advanced Black–Scholes model

2020 ◽  
Vol 07 (01) ◽  
pp. 2050011
Author(s):  
Peili Lu ◽  
Jiaqi Shen ◽  
Liheng Zhao ◽  
Haoyang Qin ◽  
Xunzhi Liu ◽  
...  
Keyword(s):  
Risk Management ◽  
Evaluation Method ◽  
Commodity Price ◽  
Price Risk ◽  
Dynamic Hedging ◽  
Hedging Strategy ◽  
Replication Method ◽  
Black Scholes Model ◽  
Black Scholes ◽  
Price Risk Management

Price Risk Management plays an important role in Commodity trading and corporate purchasing or Sales plan. Futures are used to hedge the price risk which is linear, while options are used for the nonlinear one. This paper proposes an evaluation method of dynamic hedging strategy for corporate hedging commodity price risk based on advanced Black–Scholes Model. By using the inverse replication method, we get the dynamic hedging strategy which uses futures to replicate options. Finally, we apply the dynamic hedging strategy for corporate purchases and sales to either lower purchase cost or maintain the sales price.

The impact of commodity price risk management on the profits of a company

2011 ◽  
Vol 36 (4) ◽  
pp. 346-353 ◽  
Author(s):  
Hans Ulrich Buhl ◽  
Sofie Strauß ◽  
Julia Wiesent
Keyword(s):  
Risk Management ◽  
Commodity Price ◽  
Price Risk ◽  
The Impact ◽  
A Company ◽  
Price Risk Management

SUCCESSFUL IMPLEMENTATION OF ENERGY PRICE RISK MANAGEMENT

1997 ◽  
Vol 37 (1) ◽  
pp. 668
Author(s):  
H.A. Simson
Keyword(s):  
Risk Management ◽  
Interest Rates ◽  
Performance Monitoring ◽  
Commodity Prices ◽  
Management Program ◽  
Price Risk ◽  
Energy Price ◽  
Successful Implementation ◽  
Financial Risks ◽  
Price Risk Management

Forces are gathering which require companies with significant exposure to financial risks including foreign exchange, interest rates and commodity prices such as energy to actively manage these risks. The paper describes this growing need for risk management and the characteristics of a successful risk management program using oil price by way of example, however, the concepts apply to financial risks generally. These attributes include understanding the nature of specific financial risks and risk quantification; active support and involvement by senior management including the board of directors; sound formulation of policy (including program objectives), procedures and controls; performance monitoring and reporting; compliance monitoring and disclosure of practices to shareholders and the investment community. Energy price risk management programs can be effectively implemented in quite small organisations without the need for significant increases in human resources. Programs rely on financial hedging transactions (often referred to as derivatives) to modify exposure to risk. Successful programs are more likely to be judged on factors like clarity of program objectives and program status, compliance with policy and procedures and avoidance of surprise outcomes rather than simply stand alone profitability of hedging transactions.

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