Inter-Market Volatility Spillovers Between Spot and Futures Markets: Evidence from Selected Agricultural Commodities in India

Abstract

This study is concerned with the investigation of volatility spillover effects between Indian spot and agricultural commodities future markets with special reference to National Commodity and Derivatives Exchange (NCDEX). The growing integration of commodity markets has raised important issues regarding the process of price discovery, the transmission of information and the interdependence of risk between the cash and derivative segments. Against this background, the present study investigates the dynamic interrelationship and volatility transmission processes between selected agricultural commodities in the spot and futures markets. The study uses high frequency or daily price data (as the case may be) and applies econometric volatility models such as Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and its multivariate extensions to capture time-varying volatility and spillover effects. The empirical results reveal significant volatility transmission between the spot and futures markets, indicating strong interlinkages and information flow across the two segments. The findings also submit that futures markets show a foremost role in price discovery, while spot markets contribute to short-term volatility adjustments depending on market conditions and commodity characteristics.