A Study on Growth and Volatility in Cash and Futures Market of Castor in India

Abstract

This study has analyzed the growth and volatility in cash/spot and futures prices of castor. The time series data on WPI (Wholesale Price Indices) were obtained from office of Economic Advisor, Govt. of India for a period of 1994-2013 and the data on spot and futures prices were collected from NCDEX (National Commodity Derivative Exchange of India Ltd.) website for a period of 10 years i.e. July, 2004 to July, 2014. The results revealed that in post futures period CGR (compound growth rate) for the wholesale prices of castor was higher as compared to the pre-futures period and it was significantly positive, which shows increment of prices in castor. Further it indicates that it is not only due to the futures trading but other factors like-consumption and export pattern and government policies were responsible for that. The range of percentage of CV (Coefficient of Variation) in Post futures period was less (3.35% to 12.05%) as compared to the pre-futures period (2.74% to 15.95%). Price trend is also found in spot and futures prices and in the year 2011-12 prices were high due to export coupled with weakness in Indian rupee, attracted the exporters. Analysis of price volatility has revealed its persistence in spot and futures prices for a longer period of time as the sum of the coefficient of ARCH (Auto Regressive Conditional Heteroskedasticity-α) and GARCH (Generalized Auto Regressive Conditional Heteroskedasticity-β) were estimated 1.00 and 0.91 (closer to one), which further indicates the price discovery and usefulness of futures trading.