Do Futures Trading Activities Affect the Spot Market Volatility Spillover? Evidence from India

M Thilaga; K. Prabhakar Rajkumar

Автор(и)

M Thilaga Periyar University https://orcid.org/0009-0004-3034-870X
K. Prabhakar Rajkumar Central University of Tamil Nadu https://orcid.org/0000-0002-0287-8162

Ключові слова

commodity futures market, futures trading activity, spot market volatility, GARCH

Анотація

The present study verifies the effect of futures trading activities on spot market volatility spillover in actively traded commodities on the Multi-Commodity Exchange in India. We employ the Generalised Autoregressive Conditional Heteroscedasticity (GARCH 1, 1) and Granger Causality models. The Granger causality results show that futures trading volume leads spot market volatility in all commodities except mentha oil and natural gas. On the other hand, futures open interest affects spot market volatility only for cotton. Furthermore, the study emphasises that futures trading activities significantly affect the volatility of commodity spot markets. Moreover, futures trading volumes and spot market volatility persistently show a positive, statistically significant association, highlighting the role of speculative activity in driving short-term price fluctuations. Furthermore, the influence of futures open interest is mixed, both positively and negatively affecting spot market volatility. It suggests that it can be used as both a speculative and a hedging technique, depending on the nature of the commodity. The significant ARCH effect in the GARCH model estimates indicates that new market shocks are the primary source of volatility for most commodities.

Посилання

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