Role of Commodity Market in Price Discovery Mechanism in India: A Study of Silver. Issue 2 (January 2014)

• Record Type: Journal Article
• Authors: Dangi, Vandana
• Is Part Of: Business perspectives and research. Volume 2:Issue 2(2014)
• Page Start: 15
• Page End: 24
• Publication Date: 2014-01
• Subjects: Causality -- cointegration -- price discovery -- stationarity; Management science -- India -- Periodicals; Management -- Research -- India -- Periodicals; Management -- Research -- Periodicals; Management -- Research; Electronic journals -- Business; Electronic journals -- Industry; Periodicals; 658.0095405
• DOI: 10.1177/2278533720140203
• Languages: English
• ISSNs: 2278-5337

Abstract

Price discovery is the important function of the commodity derivative market. The long run and causal relationship between two variables establish the price discovery mechanism between the two variables. The present treatise studied the price discovery by statistically testing the cointegration and causality between the spot returns and future returnsof silver. The present study is based on the spot and future prices of silver for a period of five years starting from 1 January 2008 and up to 31 December 2012. Data was studied for stationarity, cointegration and causality by applying Augmented Dickey-Fuller test, Johansen cointegration test and Granger casualty test respectively. The silver price series were found non stationary; and these series were transformed to stationary series by estimating their differentiated log.The results of Johansen cointegration test indicate that the cointegration exists between the spot returns and future returnsof silver. The result of Granger casualty test is unidirectional. The future market leads spot market but the spot market does not lead future market. So, the long run and causal relationship between the spot returns and future returns of silver indicates the virtuous performance of commodity market in the price discovery of silver.