Price discovery and volatility spillover in metal commodity market in India

Abstract

This study examines the price discovery and volatility spillovers between futures and spot prices of ten metal commodities viz., Aluminium, Copper, Iron Ore, Lead, Nickel, Sponge Iron, Steel Flat, Thermal Coal, Tin and Zinc, traded on Multi Commodity Exchange (MCX) Ltd., Mumbai. The study uses the daily data from 15th January 2004 to 31st March 2015. The empirical results confirm the price discovery between futures and spot prices, indicating strong information transmission from futures markets to spot markets in the case of majority of metal commodities. The feedback spillover effect exists between spot and futures market prices in majority of the underlying commodities that belongs to Metals. Besides, the study results suggest that the volatility spillover effects are found to be quite strong between spot and futures markets in the case of majority Metal commodities. The present study concludes that India's agriculture commodity derivatives market is evolving in the right direction as futures market has started playing crucial role in the information transmission process.