Linkages between Gold Futures Traded in Indian Commodity Futures Market and International Commodity Futures Market

Sinha, Pankaj and Mathur, Kritika (2016): Linkages between Gold Futures Traded in Indian Commodity Futures Market and International Commodity Futures Market.

Abstract

Given that gold futures contracts are one of the most actively traded commodity futures in the Indian Commodity market, it is of crucial importance to study the price, return and volatility spillover behaviour of gold traded in the Indian commodity market with respect to the International commodity market. The current study tries to study the linkages in Gold futures which are traded on Indian commodity exchange – Multi Commodity Exchange (MCX) and International commodity exchange – New York Mercantile Exchange are analysed. The study attempts to demonstrate the linkages in price, return and volatility across the two markets for the precious metal through three models: (a) Price – Co-integration methodology and Error Correction Mechanism Model (ECM); (b) Return and Volatility – Modified GARCH model; (c) Return and Volatility – ARMA-GARCH in Mean model – Innovations Model. Empirical analysis indicates that there is a presence of a long run relationship between prices of Gold futures contracts traded in MCX and NYMEX. Apart from cointegration in prices, return and volatility spillovers between MCX and NYMEX are found to be significant and bi-directional.

• Item Type: MPRA Paper
• Language: English
• Keywords: Futures, Gold, Spillover, Transaction costs
• Subjects: G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L61 - Metals and Metal Products ; Cement ; Glass ; Ceramics; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q0 - General > Q02 - Commodity Markets

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