International Linkages of Agri-Processed and Energy commodities traded in India

Sinha, Pankaj and Mathur, Kritika (2013): International Linkages of Agri-Processed and Energy commodities traded in India.

Abstract

The current study focuses on the linkages in agri-processed (soy oil and crude palm oil) and energy commodities (natural gas and crude oil) traded on commodity exchanges of India (NCDEX; MCX) and their corresponding international commodity exchanges(Chicago Board of Trade; Bursa Malaysia Derivative Exchange; New York Mercantile Exchange). This paper examines the linkages in futures price, return and volatility of a commodity across commodity exchanges with the help of three models – (a) Price – Co-integration methodology and Error Correction Mechanism Model (b) Return and Volatility – Modified GARCH model (c) Return and Volatility – ARMA-GARCH in mean model (Innovations Model). The study indicates that there are strong linkages in price, return and volatility of futures contracts traded across commodity exchanges of India and their corresponding international commodity exchanges. Given the level of linkages, the study argues against the imposition of Commodity Transaction Tax (CTT) on sellers at the time of trading in agri-processed and energy commodities. The tax would lead to lower trading volumes thereby defeating the purpose of price discovery via commodity exchanges.

• Item Type: MPRA Paper
• Language: English
• Keywords: Futures, Commodity Transaction Tax, GARCH, Crude oil
• Subjects: G - Financial Economics > G1 - General Financial Markets > G13 - Contingent Pricing ; Futures Pricing; G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation; H - Public Economics > H2 - Taxation, Subsidies, and Revenue

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