Price Discovery in Commodity Markets: The Case of Metals

Metals and metal products have long been traded on commodity markets. Trading in futures and options, as well as forwards, swaps, and other derivatives, is available for about a dozen metals. Traditionally metals have been divided into precious metals and base metals, used in industrial applications. Today the precious metals silver, platinum, and palladium are also primarily used in industrial applications, while gold is still primarily used as a store of value. CME Group exchanges and the London Metal Exchange are the best-known exchanges for metals derivatives trading. In recent years, trading volumes in all metals on exchanges in China have increased tremendously, and these exchanges have begun to contribute to global price discovery. Steel has the largest production of the base metals, but on-exchange trading of steel and its precursor iron ore has become significant only in the last few years, with trading focused in China.

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MARKET BEHAVIOR AND PRICE DISCOVERY IN INDIAN COMMODITY MARKETS

i-manager’s Journal on Management ◽

10.26634/jmgt.11.1.8070 ◽

2016 ◽

Vol 11 (1) ◽

pp. 12

Author(s):

DASH MIHIR ◽

Keyword(s):

Price Discovery ◽

Commodity Markets ◽

Market Behavior

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Price discovery in agricultural commodity markets in the presence of futures speculation

Journal of Commodity Markets ◽

10.1016/j.jcomm.2017.01.002 ◽

2017 ◽

Vol 5 ◽

pp. 50-62 ◽

Cited By ~ 22

Author(s):

Thomas Dimpfl ◽

Michael Flad ◽

Robert C. Jung

Keyword(s):

Price Discovery ◽

Commodity Markets ◽

Agricultural Commodity

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Price discovery and volatility spillover: an empirical evidence from spot and futures agricultural commodity markets in India

Journal of Agribusiness in Developing and Emerging Economies ◽

10.1108/jadee-10-2019-0175 ◽

2020 ◽

Vol 10 (4) ◽

pp. 447-473 ◽

Cited By ~ 3

Author(s):

Manogna R L ◽

Aswini Kumar Mishra

Keyword(s):

Granger Causality ◽

Futures Markets ◽

Price Discovery ◽

Spillover Effects ◽

Futures Market ◽

Commodity Markets ◽

Volatility Spillover ◽

Agricultural Commodity ◽

Content Type ◽

Spot Prices

PurposePrice 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/approachThis 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).FindingsThe 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/implicationsThese 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 implicationsThe 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/valueThere 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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