Price Discovery in Indian Agricultural Commodity Markets

Abstract

In this paper, the price discovery relationship for ten agricultural commodities has been examined. Price discovery is confirmed for all commodities except Turmeric. Price discovery results are encouraging given the nascent character of commodity market in India. However the market does not seem to be competitive. The findings have implications for policy makers, hedgers and investors and will help in deeply understanding the role of futures market in information dissemination. The commodity exchanges must strengthen their surveillance system for early detection on continuous basis of anomalous trading behaviour. These markets are becoming informationally mature and market regulators have taken adequate steps for market development. Forwards Market Commission (FMC) should be given adequate powers to regulate commodity market and penalise any insider trading and price manipulations. Well-organized spot markets must be developed, ensuring transparency and trading efficiency. Electronically traded spot exchanges must be developed and warehousing; testing labs as well as other eco-system linkages must be established to strengthen the derivative market trading mechanism for efficient price discovery mechanism.