Relationship between Spot and Futures Markets of Selected Agricultural Commodities in India using co-integration and causality tests

Abstract

The association between spot & future prices have always been intriguing researchers and financial experts across regions and countries over the past several decades. The phenomenon of agricultural commodity derivatives have transitioned beyond an unprecedented threshold, thus necessitating a robust mechanism and framework wherein predictability of future price movements using spot price data points becomes indispensable for policy makers. The present study makes an attempt to apply granger causality test, unit root test, Philips Perron test, Augmented Dickey Fuller test & Stationarity with respect to Jeera, Barley & Castor seed based on data elicited from daily spot & future prices. It is found that spot prices can be used as a good predictor to ascertain the directionality and strength of movements in the future prices.