MAHARAJA AGRASEN
INSTITUTE OF MANAGEMENT & TECHNOLOGY
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MAIMT Celebrating 21 Years Of Excellence in Management & IT Education (since 1997)

Abstract

MAIMT - JOURNAL OF IT & MANAGEMENT

Index:
PRICE DISCOVERY IN CRUDE OIL FUTURES MARKET IN INDIA - Narinder Pal Singh, Dr. Archana Singh
Abstract:

Crude oil is main source energy in India. A price change in crude oil is expected to transmit to all its products like diesel which is the key fuel used in transport industry and manufacturing houses. Hedging in crude oil may help to reduce price risk of diesel and other petro-products. Thus, this study focuses on the most critical condition of hedging price risk i.e. price discovery function of crude oil futures market. The data on daily closing spot prices and futures prices of crude oil for sample period from January 2010 to December 2016 is obtained from the website of Multi Commodity Exchange (MCX), India. We have used Johansen's co-integration and Granger causality approach. The two series are found to be integrated series of first order. Johansen's co-integration results indicate that crude oil spot and futures prices are co-integrated and they possess long run equilibrium. Granger causality results show that there is two-way causality from spot market return to futures market return, and from futures to spot market return in crude oil. Thus, crude oil futures market leads to price discovery in spot market with a feedback mechanism. The findings of this study are useful to traders, importers, corporate houses, government and policy makers.

Keywords:Price Discovery, Co integration, Causality, Futures Market, Crude Oil

JEL Classification: G14, G13. G23, F65

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