Financial Risk Management
Risk Analysis of Spot and Futures Prices of Maize in India
Article Details
| Pub. Date | : June, 2021 |
|---|---|
| Product Name | : The IUP Journal of Financial Risk Management |
| Product Type | : Article |
| Product Code | : IJFRM30621 |
| Author Name | : Ravi Prakash Siddavatam and C Vijendra |
| Availability | : YES |
| Subject/Domain | : Finance Management |
| Download Format | : PDF Format |
| No. of Pages | : 25 |
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Abstract
The ultimate emphasis of commodity futures market is for price discovery and price risk management. This study investigates the efficiency by assessing the relationship between futures and spot prices of maize commodity traded on NCDEX by using EViews Version-10 software. The future and spot prices of maize commodity for six years have been studied using unit root test, Johansen cointegration test, Granger causality test, VECM, Wald test, Variance decomposition test and impulse response graphs. Futures are unbiased predictors of spot, and this is the hypothesis that has been tested by using the above econometric tools. Price discovery is one of the important economic functions of the commodity futures market in India as it provides competitive futures from which spot price can be arrived. There is cointegration relationship between futures prices and spot prices for maize. This suggests that there is a long-term relationship between futures prices and spot prices of maize.
Introduction
Agricultural and its allied sectors have been playing a sheet anchor role in the success of the
Indian economy. The increasing trend of agricultural production over a few decades has
brought new challenges in terms of finding a market for price market surplus and ensuring
the supply of commodities from regions with surplus to those with deficit. The greatest
challenge is in ensuing that the farmer is able to manage price risk.
Agriculture markets have been in existence in India for several centuries. After
independence, many major policy decisions adversely affected agricultural commodity markets.
The policy of defining "primary commodities" is for the government to set a Minimum
Support Price (MSP). Over the years, the MSP has risen dramatically, so that the MSP is no
longer an exigency, instead it is often higher than the market price and becomes a subsidy
provided by the government. The MSP of maize from 2012-13 to 2018-19 is given in Table 1.
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