Price Volatility in Agricultural Commodity Futures -An Application of GARCH Model

摘要

Uncertain movement in commodity prices is a major concern for policy makers. Generalised autoregressive conditional heteroscedasticity (GARCH) model was applied to measure the extent of volatility in spot prices due to futures trading. The study sourced the available daily spot prices of selected twenty agricultural commodities that are traded in NCDEX platform both for 2009-10 (period of peak inflation) and right from the date of commencement of trading till June 2014. Empirical results indicated low price volatility in maize, soybean, cotton seed oilcake, castor, palm oil, cumin and chilli during the peak inflation period i.e., 2009-10; whereas, chickpea, cotton seed oilcake, mustard and cumin experienced the same level of volatility right from inception of trading. The present study concludes that futures market helps to reduce price volatility but not necessarily in all the commodities. Hence, it is recommended that the commodity exchanges should continue the trading in commodities that exhibitlow volatility. Further, actual economic reasons for the persistence of volatility in the rest of the commodities have to be probed.