A study of linkages between agricultural commodity indices in the Indian market

Abstract

The study facilitates in understanding of the commodity market and the agricultural indices. The commodity market is deeply evaluated as all the exchanges and their agricultural indices are analyzed in the study. Further, the volatility effect of MCX Agri Index and NCDEX Dhannya Index are evaluated since MCX having major market share in the commodity market as compared to NCDEX. The volatility is studied in order to understand if there is any further price discovery of commodities and to understand if the Indian agricultural commodity market is still volatility. As the effect of one index on the other is being understood the investor can be aware of the volatility change in the agricultural market. Volatile market gives a chance to the investor to earn in the market from new price discovery of the commodity. On examination of the indices, it is learnt that there are only two commodity exchanges providing agricultural indices i.e. MCX and NCDEX and the composition of their agricultural commodity indices are further analyzed. Past studies have shown linkages between future and spot market of individual commodities and other commodity indices; hence, to examine the volatility effect or the linkage between the agricultural commodity indices for the period 2007 to 2015, tools and techniques used are correlation test, ADF t-test, Garch (1, 1) and Granger Causality Test in E-views. The study shows that there is linkage between both the agricultural commodity indices since volatility of one index affects the other.