STUDY ON MARKET EFFICIENCY AND PRICE RISK MANAGEMENTIN FUTURE TRADING

摘要

The commodity exchanges help in achieving market efficiency and promoting the physical market participants in better price risk management. Transparency created by the commodity futures trading leads to integration of various spot markets across the country. Commodity futures trading also facilitate to increased credit flow into the commodities sector. This study has been undertaken to examine market efficiency and price risk management in Chana (Gram) in future market (NCDEX) and spot market Bikaner(Rajasthan). The result of cointegration test between future market and spot market signifies that there is at most one co integrating equation and one co integrating vector between the bivariate price series or these series are co integrated each other. This evidence provides sufficient support to the fact that the criterion of market efficiency in Chana trading has been attained during the period under report. The price risk management on the investment in future contracts was examined with the helpof hedge ratio analysis. In order to calculate optimum hedge ratio the study suggest that time varying hedge ratio model produces low average forecast error as compared to constant hedge model. This study also indicates that time varying parameter modelis superior over the constant parameter hedge ratio model. The performance of two hedge ratio models revealed that the time varying hedge remained above the constant hedge during few days and in rest of the time it remained below the constant hedge. It implied that the future instrument fetches less returns during these limited days. While in rest of the time period the future price attract large returns on the investment in these instruments.