The relative efficiency of the crude oil futures market: Evidence from India

Inani, Sarveshwar Kumar (2018) The relative efficiency of the crude oil futures market: Evidence from India. International Journal of Banking, Accounting and Finance, 9 (2). pp. 225-243. ISSN 17553830

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The purpose of this study is to identify the extent of relative efficiency of the futures contracts of crude oil, traded in the multi commodity exchange of India limited. This study examines the price discovery process in the short-run and long-run by using daily data from 1 April 2006 to 30 June 2015. Stationarity and cointegration tests reveal that spot and futures prices are I(1) and cointegrated. Granger causality test has been employed to examine the short-run price discovery, which shows a bi-directional causality with a dominance of the futures market. Three different information share techniques-component share method of Gonzalo and Granger (1995), information share method of Hasbrouck (1995) and modified information share of Lien and Shrestha (2009) - have been used to measure the relative efficiency of the spot and futures market in the long-run. These results (short-run and long-run) indicate that the price discovery takes place in the futures market. Relative efficiency and the price discovery have crucial implications for optimal portfolio allocation and forecasting of future spot prices. These findings might be useful for the regulators, government, exchange and policy makers to form market structure policies and guidelines for the commodity markets in emerging economies.

Item Type: Article
Keywords: Common factor methods | Futures market | Information share | Johansen cointegration | Price discovery | Relative efficiency
Subjects: Social Sciences and humanities > Business, Management and Accounting > Management Information Systems
Social Sciences and humanities > Economics, Econometrics and Finance > Economics
JGU School/Centre: Jindal Global Business School
Depositing User: Mr Sombir Dahiya
Date Deposited: 21 Dec 2021 06:42
Last Modified: 14 Feb 2022 05:47
Official URL:


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