A

SYNOPSIS

ON

A STUDY OF IMPACT OF VARIOUS DETERMINANTS ON COMMODITY SPOT AND

FUTURE INDEX WITH SPECIAL REFERENCE TO METALLIC SECTOR

SUBMITTED FOR THE REGISTRATION OF THE DOCTOR OF PHILOSOPHY IN THE

DEPARTMENT OF ACCOUNTANCY & LAW

FACULTY OF COMMERCE

UNDER THE SUPERVISION OF: SUBMITTED BY:

Dr. NIDHI SHARMA SARITA GAUTAM
Associate Professor Research Scholar
Dept. of Accountancy and law Dept. of Accountancy and law
Faculty of Commerce

DAYALBAGH EDUCATIONAL INSTITUTE

(DEEMED UNIVERSITY)
DAYALBAGH, AGRA
AUGUST, 2015
 i

INDEX

S. NO. TOPIC PAGE NO.

1) INTRODUCTION 1-3

2) REVIEW OF LITERATURE 4-14

3) NEED OF THE STUDY 15

4) OBJECTIVES OF THE STUDY 16

5) RESEARCH DESIGN AND RESEARCH 17-20

METHODOLOGY

6) PROPOSED CHAPTER PLAN 21

REFERENCES & BIBLIOGRAPHY 22-25

 1

INTRODUCTION

Derivatives and Commodities are risk management instruments, which drive their value from an

underlying assets. The underlying assets can be Bullion, Share, Bonds, Currency, Interest and

Commodities, etc. Banks, Securities Firms, Companies and Investors uses the derivatives and

Commodities for making the more profit by investing minimum capital. These tools are also helpful

in hedging the risk. Many of the previous studies conducted on the derivatives but in this research,

researcher taken the commodity as the main aspect.

COMMODITIES

A commodity may be defined as an article, a product or material that is bought and sold. Every kind

of movable property, except actionable claims, money and securities are called as Commodity.

Actionable Claims means a claim to any debt which is not secured by movable or immovable

property or claim to any beneficial interest in movable property not in the possession of the

claimant. Commodities are easy to understand as far as fundamentals of supply and demand are

concerned. Retail investors should understand the risks and advantages of trading in commodity

futures. Historically, pricing in commodity futures has been less volatile compared with equity and

bonds, thus providing an efficient portfolio diversification option.

Definition- Commodity refers as “any good that possesses a physical attributes.” Goods defined in

the Act of Forward Contract Regulation Act (1952) – “every kind of movable property other than

actionable claims”. Commodity comes from the French word- “Commodite” which is used to refer

to an object of utility that offers some convenience or useful services.

COMMODITY MARKETS- Every commodity that is produced must eventually come to market

place where it can be bought and sold. It is in this marketplace that all the elements of commerce

will come together to settle a price at which the commodity will get traded. A commodity market is

a market that trades in primary rather than manufactured products.

2

There are two types of commodity – 1. Soft commodities are wheat, coffee and sugar. 2. Hard

commodities are Gold, Silver, rubber and oil.

 A future market is a central financial exchange where people can trade standardized futures

contracts that is a contract to buy specific quantities of a commodity at a specified price with

delivery set a specified time in the future. Futures contracts are the oldest way of investing in

commodities. Futures are secured by physical assets. Commodity future contract is an

agreement to buy or sell a set amount of a commodity at a pre-determined price and date.

Buyers use these to avoid the risks associated with the price fluctuations of the product while

sellers try to lock in a price for their product.

 Spot market or cash market is a public financial market in which commodit ies are traded with

cash for immediate delivery. Depending on the market immediate delivery is defined as being

within a month. Precious metals are properly traded on spot market.

FORWARD MARKETS COMMISSION

The Forward Markets Commission (FMC) is the chief regulator of commodity futures markets in

India. As of July 2014, it regulated Rs 17 trillion worth of commodity trades in India. It is

headquartered in Mumbai and this financial regulatory agency is overseen by the Ministry of

Finance. The Commission allows commodity trading in 22 exchanges in India, of which 6 are

national. It established in 1953 under the provisions of the Forward Contracts (Regulation) Act,

1952. Ramesh Abhishek is the chairman of this commission.

MULTI COMMODITY EXCHANGE OF INDIA LIMITED (MCX)

The Multi Commodity Exchange of India Limited (MCX), India’s first listed exchange, is a state-

of-the-art, commodity futures exchange that facilitates online trading, and clearing and settlement of

commodity futures transactions, thereby providing a platform for risk management. The Exchange,

which started operations in November 2003, operates within the regulatory framework of the

Forward Contracts (Regulation) Act, 1952.

 3

TYPES OF COMMODITY MARKET

In the table given below the following elements has been given which are related to the commodity

market-

SECTORS ELEMENTS

METAL Aluminium, Copper, Lead, Nickel, Steel, Tin, Zinc

BULLION Gold, Silver

FIBER Cotton, Kapas, Jute

ENERGY Brent Crude Oil, Crude Oil, Natural Gas, Carbon Credit

SPICES Cardamom, Pepper, Red Chili, Turmeric, Cumin Seed, Coriander

PLANTATIONS Cashew, Coffee, Rubber

PULSES Chana, Masur, Yellow Peas, Tur, Urad

PETROCHEMICALS HDPE, Polypropylene(PP), PVC

CEREALS Maize, Barley, Rice, Sharbati Rice, Basmati Rice, Wheat

OTHERS Guargum, Guar Seed, Gurchaku, Menthe Oil, Potato

OIL & OIL SEEDS Castor Oil, Castor Seeds, Coconut Oil, Cotton Seed, Groundnut Oil,
Mustard Oil, Mustard Seed, Refined Soy Oil, Refined Sunflower Oil, Rice
Bran DOC, Rice Bran Refined Oil, Sesame Seed, Soy Bean, Soy Seeds

ITEMS IN COMMODITY METALLIC SECTOR

In the table given below the following elements has been given which are related to the commodity

metallic market-

FERROUS METAL NON –PRECIOUS METAL PRECIOUS METAL

Steel Aluminium, Copper Gold
Iron ore Nickel, Zinc Silver
Lead, Tin Platinum
 4

REVIEW OF LITERATURE

The format of a review of literature may vary from discipline to discipline and from study to study.

The purpose of a review is to analyze critically a segment of a published body of knowledge

through summary, classification, and comparison of prior research studies. To prepare the present

study in the scientific manner, the various reviews of literature have been surveyed by the

researcher in the area of commodity spot and future market. From many good review of literatures

researcher has been selected the main review of literature on some specific parts. The various

reviews of literature are as follows:-

INTERNATIONAL REVIEWS

S.N Author Year & Title & Objectives Research Findings/Conclusion

O. Publicatio Source Methodology
n
Amine Journal of Commo This paper In this study The empirical result of this study
Lahiani Applied dity examines GARCH shows that range-based DCC model
1. & Business Price the price model had out performs return-based DCC
Khaled Research Correlat volatility been used. Model for most cases. This study
Guesmi (JABR) ion and and hedging Data reinvestigates the weekly hedging
30, no. 4 Time behavior of collection strategies generated by return-based
(2014): varying commodity method was and ranged-based dynamic
1053- Hedge futures the Secondary conditional correlation (DCC)
1062. Ratios indices and data based models for three stock indices, i.e.
stock collection. two metal commodities and one
market crude oil. The hedging performances
indices. of short and long hedgers are
evaluated not only with traditional
variance-based and utility-based
measurements but also with
approaches based on downside risk,
such as semi-variance, low partial
moment and conditional value-at-
risk. Furthermore, a range-based
dynamic hedging strategy sustains its
predominance even if the transaction
cost is considered.
 5

2. Ngugi Global Factors To study the Hypothesis In this study, the target population
Nahasho Advanced influenc document framed. was the 138 comprising of 8
n Research ing and Primary and departments of Capital Market
Njoroge, Journal of develop analyze the secondary data Authority of Kenya (CMA), 58
Njagi Manageme ment of developmen had been Quoted Companies at NSE and 72
Gabriel nt and financial t of financial collected. other financial market
Matumo Business derivati derivatives Correlation intermediaries. This study found out
nd and Studies ves market analysis was that securitization of fixed assets was
Kimani (ISSN: markets: in Kenya. used to very available at 29.4% of the
E Maina 2315- a survey determine the respondents and available at 41.2%
5086) Vol. of listed relative while 17.6% and 5.6% of the
2(5) pp. compani strength of respondents was less available. This
258-267, es in each variable. is the questionnaire based analysis.
May, 2013 Kenya. Questionnaire This shows that over 50% of
had been used securitization of fixed assets was
for the available. The study found out that
primary data on financial innovation 42.9% of the
based respondents fairly embraced it, 38%
analysis. and 14.3% of the respondents fully
embraced and embraced it
respectively while 4.8 % of the
respondents did not embrace it.

3. Christop MIT The To analyze Correlation They focus on crude oil, but their
her R. Center for Simple the potential and Trend approach can be applied to other
Knittel energy and Econom and actual analysis had commodities. In this study to
and environme ics of effects of been used in determine whether speculation as the
Robert ntal policy Commo speculators, this study. driver of price changes is consistent
S. research dity and with the data on production,
Pindyck working Price investors in Secondary consumption, inventory changes, and
paper, Speculat general, on Data of oil changes in convenience yields given
National ion commodity prices for the reasonable elasticity assumptions.
Bureau of prices. period of 2009 Spot price changes for the three-
Economic to2012 had month intervals, the counter factual
Research, been taken for prices are very close to the actual
No. this study. prices, and the correlation is 0.96.
w18951 The average spot price over this
April 2013 period was $55.37 per barrel, and the
average counter factual spot price is
$55.34. Inventory changes for three
month are that these two series are
negatively correlated; the correlation
between the two is 0.54.They show
speculation had little effect on prices
and volatility.
 6

4. Dwyer, RBA Global To Statistical In this study financial investors can

Alexand Bulletin, commod examines methods are as affect the short-run price dynamics
ra, June ity the factors follows- for some commodities, the level and
George (2011): markets behind the Standard volatility of commodity prices
Gardner 49-57. –price increase in deviation, appear to be primarily determined by
, and volatilit the level and percentage fundamental factors. The main
Thomas y and volatility and graph fundamental factors are shift in the
Williams financial of presentation. composition of global growth over
. isation. commodity Secondary the period. Like- China’s growth.
prices. Data from Food prices are the second reason.
2001 to 2011 Demand and supply is the another
had been factor for determining commodity.
collected for Commodity prices tend to be more
analysis volatile than many other prices in the
purpose. economy because in the short term
both global supply and demand for
commodities are relatively price
inelastic.
5. George Division Does To find out Descriptive This paper finds no evidence that
M. of Speculat the statistics and speculative activity in futures
Kornioti Research ion correlation ordinary least markets for industrial metals caused
s- & Affect between square of higher spot prices in recent years; the
Statistics Spot metals with regression annual and quarterly price growth
and Price and without model are rates of the two metal categories
Monetary Levels? futures used. have been positively correlated. This
Affairs, The contracts. comovement is driven by economic
Federal Case of fundamentals because world GDP
Reserve Metals growth is strongly correlated with
Board, with and metal price growth, especially after
2009. without 2002. Author use the S&P Goldman-
Futures Sachs Commodity Index returns to
Markets proxy for the volume of speculative
activity and author show that these
returns are unrelated to metal prices.
The final test follows storage
models, which suggest that
speculation can affect spot markets
only if it leads to physical hoarding.
Focusing on metals with established
futures markets, He found no
evidence of physical hoarding
because inventory growth is found to
be negatively correlated with price
growth rates.
 7

Robert The Volatilit To examine Generalized In this study, Generalized Method of

6. S. Journal of y And the role of Method of Moments structural model of
Pindyck Futures Commo volatility in Moments inventories, spot, and futures prices
Markets, dity short-run Structural that explicitly accounts for volatility,
Vol. 24, Price commodity model was and estimate it using daily and
No. 11, Dynami market used in this weekly data for the petroleum
1029– cs dynamics study. complex: crude oil, heating oil, and
1047 and the Secondary gasoline. The model replicates the
(2004) determinant weekly data dynamics of the heating oil spot
s of for petroleum price and convenience yield well,
volatility had been given the sharp movements that
itself. collected from occurred during the two simulation
January 1, periods. The model does not,
1984, to however, capture the dynamics of
January 31, inventories very well. This is not
2001, for surprising; Model Equations explain
crude and first and second differences of
heating oil, inventories, so that prediction errors
January 1, in the level of inventories will
1985, to accumulate over time. Author
January 31, increased the entire trajectory of
2001. volatility by 0.0448, which is one
standard deviation of its level over
the 1984–2001 sample, and then re-
solved the model.

Gian 2002 Testing To estimate Statistical tool The multivariate GARCH model is
7. Carlo Journal of for the optimal -multivariate estimated using weekly corn cash
Moschin Empirical Constan futures GARCH was and futures prices. Statistical tests
i and Finance t Hedge hedge ratio applied for reject the null hypothesis of a
Robert Vol.9, Ratios which is testing constant hedge ratio and also reject
J. Myers No.5,589- in constant the the null that time variation in optimal
603 Commo over time, hypothesis. hedge ratios can be explained solely
dity given that by deterministic seasonality and
Markets the time-to-maturity effects. The
: A joint modified BEKK model is applied to
Multivar distribution the problem of estimating and testing
iate of cash and optimal hedge ratios for speculative
GARCH futures storage of corn in the Mid-west.
Approac prices. Their statistical tests support the
h conclusion that optimal hedge ratios
for weekly storage hedging of corn
in the Midwest are indeed time
varying in ways that cannot be
explained simply by seasonality and
time-to-maturity effects.
 8

Kenneth The Detectin To identify Trend analysis In this study, Futures price cannot
8. R. Journal of g Spot commodity and seasonal provide forecast that are reliably
French Business, Price characteristi variation better than the current spot price
Vol.59 Forecast cs. And unless the variance of the expected
No.2 s in To examine descriptive spot price changes is a large fraction
(apr- Futures the factors statistics of the variance of the actual spot
1986), Prices that Regression price changes. Positive demand
pp.S39- generate analysis had shock leads to a negative expected
S54 predictable been used. change in the spot price. The
The spot price magnitude of seasonal variation in
university changes and the spot price increases with the
of Chicago the factors importance of seasonality in the
press that obscure demand or production function. If
URL- the markets the slope of the marginal storage cost
www.jstor. forecasts of function is relatively large, the spot
org/stable/ these price price in one period is insulated from
2352781 changes. shocks in another period.

NATIONAL REVIEWS

S. Author Year & Title & Objectives Methodology Findings/Conclusion

No Publicatio Source
. n
Rakesh Internation Individua To identify the Author uses In this study, Through factor
1. H M al journal ls major factors the primary analysis high return, low risk,
in Investors which have greater data for the objective knowledge, and
Manageme Behavior influence on the study and information asymmetry are the
nt and : A Study behavior of selected main factors which greatly
social of commodity market Mysore as influenced the behaviour of the
science Commod investors. To sample. He investors. The influence of all
(IJMSS) ity assess the uses the these factors on the commodity
Vol.02 Market investors’ principal market investors’ behavior is
Issue-01 perception about component found to be significant with 95
ISSN:2321 extent of influence method of percent confidence level.
-1784 of factors on factor analysis
January behavior of with varimax
2014 investors towards rotation.
commodity
market.
 9

Agarw Economic Agricultu To study the Author This paper focuses on the
2. al, Survey ral evolution and collected theconceptual perspective of
Neeti, (2010): 11. Commod growth of Secondary commodity future trading and its
and AIMA All ity Future commodity market data. implication on the commodity
Gurba India Trading in India. To study Arbitrage market. The study shows that
ndini Manageme And Its the price volatility, method and
there is much scope in the Indian
Kaur. nt Implicati efficiency and trend analysis
market. Broadly, five sources of
Associatio ons–An arbitrage had been used.
the volatility on agricultural
n Overvie opportunity related future markets have been
Journal of w to agricultural Efficient identified in this study. They are
Manageme future commodity Market year effect, the calendar month
nt & market hypothesis effect, the contract month effect,
Research, analysis had the maturity effect and trading
May 2013, been done. session effect. The verifiable
Volume 7, hypothesis of this is that the
Issue 2/4, volatility of price changes grows
ISSN 0974 larger as contracts approach
– 497 maturity. Their results suggest
that greater mispricing occurs
with increased market volatility,
and hence generating profitable
arbitrage opportunities.

3. Prof. All India A Study To study of This is the In this study, there is strong
Gurba Manageme of relationship Secondary correlation between spot close
ndini nt Prospects between the spot data based price and future open price for
Kaur Associatio Of and future price exploratory turmeric commodity. Thus spot
n(AIMA) Agricultu for turmeric. research. closing price on the previous day
Journal of ral To study the scope Statistical (N-1) influences the opening
Manageme Commod of arbitrage in the techniques are price of future contract on the
nt & ity agricultural market used as- next day (day N). Furthermore,
Research, Futures in India. Correlation the research showed not much
2013 In technique, arbitrage opportunity to exist in
India – A Regression, & the turmeric product due to very
Case of Standard minute difference between
Turmeric deviation. standard deviation in the opening
and closing price of future
contract. The low arbitrage
opportunity is nullified by the
transaction cost. In this case R2 =
.974, explains 97.4% of total
variation observed in the
dependent variable. Thus only
2.6% of total variation in the
dependent variable (future open)
remains unexplained by the
regression equation.
 10

4. Vijaya Prajnan- Relations They examine the They The ADF test indicates that the
Kumar Journal of hip relationship considered all futures prices and spot prices of
, N., S. Social and between between spot and the contracts chili, coriander, jeera, pepper and
Parvad Manageme Futures futures prices for of the above turmeric series are non-stationary
avardi nt and Spot selected five commodities at all levels. Null hypothesis of
ni, and Sciences 4 Market agricultural Over a period the series in unit root is
M. 1, no. 3 for commodities, of 36 months, summarily rejected at 5 per cent
Dhara 2013. Selected namely, Chili, from Jan 2008 level of significance. Johansen co
ni. Spices in Coriander, Jeera, to Dec 2010. integration test rejects the null
India. Pepper and The study hypothesis that the spot and
Turmeric. examined the futures prices of selected spices
existence of are not co integrated and clearly
unit root in the depicts the two integrated
data series by variables having a long-run
employing relationship at 5 per cent level of
Augmented significance, which is confirmed
Dickey-Fuller by the lower critical values than
(ADF) test the estimated Max rank values
and and Trace rank values. Thus, the
Johansen futures and spot price series are
Co integration serially correlated and hold the
test and the long-run relationship. This model
presence of takes the null hypothesis in which
disequilibrium the errors are co integrated in
between short-run. VECM shows that the
markets R2 Chilli is 0.41, coriander is 0.39,
in short run by jeera is 0.48 peppers is 0.44
employing turmeric is 0.52 future price.
Vector Error VECM shows that the R2 Chili is
Correction 0.ooo7, coriander is o.003, jeera
Model is 0.003, pepper is 0.001, and
(VECM). turmeric is 0.004 spot price.

5. Santho World Commod To measure the In this study, In this study, the descriptive
sh Economics ity Price price volatility of four notional statistics on spot and futures
Kumar Associatio volatility different commodity return of Agriculture
n and time commodities in spot and (LRAS&LRAF), Energy
Conference varying the spot market. future indices (LRES&LREF), Metal
s (WEA) hedge To analyze the Agriculture (LRMS&LRMF), and Comdex
No. 3 ratios: hedge ratio using (AGRI), (LRCS&LRCF), indices.
Rethinking Evidence different Energy Negative skewness, except for
Financial from the econometric (ENER), agri spot return, high kurtosis and
Markets, 1- notional models. To Metal a significant Jarque-Bera
24 Commod estimate the (META) and statistics are clear evidence for
ity effectiveness of an aggregate asymmetry in distribution, thick
http://rfcon Futures hedge ratio of agricultural, tail and non-normality
ference201 Indices estimated in energy and respectively. Among the three
2.worldeco of India. minimizing metal bivariate GARCH models DCC-
nomicsasso exposure to the commodities GARCH reports a higher variance
ciation.org/ (COMDX), reduction in AGRI (60.255%)
wp- retrieved from and META (54.338%) markets.
 11

content/upl spot market. the CCC-GARCH provides higher

oads/WEA commodity variance reduction in ENER
- future (70.407%) and COMDX
RFMConfe exchange (46.343%) markets. The
rence2012- MCX India. DVECH-GARCH model stands
Kumar.pdf Variance second best in variance reduction
analysis, in both ENER and COMDX
ARCH, markets. In COMDX index,
GARCH (P, which is an aggregate of
Q) model was agricultural, energy and metal
used. commodities, DVECH-GARCH
presents a maximum variance
reduction (77.1%). It is DBEKK-
GARCH and CCC-GARCH
which stand second in variance
reduction in AGRI and META
markets respectively.

N. Internation A Study To analyze market The five The study considered daily spot
6. Sajipri al Journal on efficiency of commodities and futures prices of five selected
ya of Market selected Pepper, Crude commodities traded on NCDEX
advanceme Efficienc commodities palm Oil, steel over 12 month period (the futures
nts in y of (Chana, pepper, silver and contracts originating and expiring
Research & Selected steel, silver, crude Chana are during the period January 2011 to
technology, Commod oil) chosen for December 2011). The results of
Vo-1,issue- ity To study the studies which Run test indicate that both spot
5,ISSN- Derivativ market efficiency are traded on and futures prices are weak form
2278-7763- es Traded of NCDEX in NCDEX. efficient. The significant negative
-October- on India by This study is Z value for prices indicate that
2012 NCDEX considering all based on the actual number of runs fall
During commodity indices Secondary short of the expected number of
2011- in future and spot data. Data runs. Theoretical basis of the
markets. collected from weak-form efficient hypothesis
NCDEX states that the successive prices
WEBSITES- are independent and past prices
www.ncdex.c have no predictive content to
om from 1 jan forecast commodity price. The
to 31 dec 2011 non parametric run test for the
and Run test is full sample period indicated that
used. both future and spot price for all
selected commodities are
efficient in weak form.

ZENITH A Study To present a Data In this study, the figures revealed

7. Nenav Internation on theoretical collection by Futures Industry Association
ath al Journal Technica framework method was (FIA) Annual Volume Survey
Sreenu of Business l relating to the Primary and reported here under bring out
Economics Analysis derivative market and secondary the fact that more than 15 billion
& of in India. data. futures and options contracts
Manageme Derivativ To observe the were traded during 2009 on the
nt Research e Stock daily price Statistical 54 important exchanges that
 12

Vol.2 Issue Futures movement of method was report to the FIA, reflecting a
3, March And The selected stock Moving remarkable increase of 28% from
2012, ISSN Role For futures. Average the previous year. At last four
2249 8826, Debt To identify the Method. years, these figures reflect that
81-100 Market buying and selling the growth rate was 29 % in
Online Derivativ signals to the 2008, 19% in 2008, 12% in 2007,
available at es in selected scripts. and 9% in 2006. The total volume
http://zenit Debt traded globally over the period
hresearch.o Market 2000-07, the US exchanges alone
rg.in/ Develop constituted as much as 35 percent
ment In share. North America with a
India. share of about 40 percent, Asia-
Pacific occupies the second slot
with a share of 28 percent and
Europe falls at the third place
with its contribution of 24
percent. The turnover of the NSE
derivatives segment in 2006-08
stood at Rs. 2130610 crores. It
grew to Rs.13090477 crores
during the year 2007-09,
displaying a more than six-time
increase over the five year period.
In marked contrast, at the global
level the increase was less than
even two-fold: the turnover was $
8163 million in 2003 and $ 15187
million in 2007.

Dr. VIEW A Study The main The period of The study finds that for the three
8. Sathya POINT on objective of the study is from NSE indices, the study rejects the
swaroo Volume 2 • Relative study is to 1 January null hypothesis of 'no significant
p No. 1 • Volatility investigate 2000 to 31 change in relative inter-day
Debasi January- in Spot whether there has December volatility between spot prices and
sh June 2011 and been significant 2010. The futures prices' over the entire
Futures change in relative study used period 2000-2010, but cannot
Market in volatility of the three stock reject the hypothesis fully for all
Selected underlying spot indices of the individual years. There is
Stock return and futures NSE namely significant change in relative
Indices return. Nifty, CNX IT intra-day volatility between spot
of NSE and CNX prices and futures prices for all
Bank. the three NSE indices. For NSE
Hypothesis Nifty, the volatility is higher for
has been futures market for all the
framed and it individual years under study.
was tested in Further, the inter-day volatility of
1%, 5% and NSE Nifty futures is 0.0152 in
10% level. comparison 0.0143 for spot
Volatility market over the entire period of
Measurement 2000-2010. Only for year 2004,
Tools Are the relative inter-day volatility of
 13

Parkinson's Nifty is statistically significant

Extreme with futures volatility higher at
Value 0.0196 and spot volatility at
Estimator & 0.0176. For CNX-IT and CNX-
Garman-Klass Bank, the futures volatility is
volatility relatively higher than spot inter-
(GKV) day volatility for all the years.
measure.

9. Mukth Internation A Study To empirically The study is The results reveal that the null
ar, al Journal on examine the price based on hypothesis that the spot and
Jaheer. of Business Empirica discovery and secondary future price have unit root cannot
Manageme l causal relationship data. be rejected in level 1% level of
nt and Analysis between spot and Study has significance. This indicates that
Informatio of Price future market. used daily both these series have unit root
n Discover To empirically closing values and they are non stationary at
Technolog y and verify whether of S & P CNX level. However when they take
y 3, no. 2 Causality future market or nifty futures their first difference the results
(2011). between spot market and spot S & reveal that both series are
NSE respond P CNX nifty stationary. The null hypothesis
Spot and faster to the index, which the series has unit root can be
Future deviation from are considered rejected at 1 % level of
Market in equilibrium price. from June 12 significance for both series. This
India. 2000 to 10 provides evidence for the
November argument that both future and
2008. The data spot prices are non stationary at
consist of level and stationary at first
2200 difference. Therefore they are
observation integrated of order. The next step
for both future is to verify the direction of
prices and causality and to identify the short
spot prices. run dynamics. For this the Vector
To check the Error Correction Model (VECM)
stationarity, is employed. Using Akaike’s
long run co Information Criteria (AIC) and
integration Schwarz Criteria (SC) two lags
and causal are selected for VECM model.
relationship The coefficient of Error
unit root test Correction term indicates the
like Dickey speed of adjustment of future and
Fuller (DF) spot prices form a short run
Test and deviation from the long run
Augmented equilibrium value. Only the Error
Dickey Fuller Correction term of future prices is
(ADF), co found statistically significant and
integration test the Error Correction term of spot
and Vector prices is statistically insignificant.
Error Future price has greater speed of
Correction adjustment to the previous
Model period’s deviation from long-run
(VECM) was equilibrium than the spot price
 14

used. series. There is two way

(bidirectional) causality between
spot and future market. Price
discovery occurs in both markets.

10. Kumar Indian Hedging This paper They estimate They compare in-sample and out-
, Institute of effective examines hedging dynamic and of-sample performance of these
Brajes Manageme ness of effectiveness of constant hedge models in reducing portfolio risk.
h, nt W.P. constant futures contract on ratio for S&P It is found that in most of the
Priyan No.2008- and time a financial asset CNX Nifty cases, VAR-MGARCH model
ka 06-01, 1-35 varying and commodities index futures, estimates of time varying hedge
Singh, Available hedge in Indian markets. Gold futures ratio provide highest variance
and at SSRN ratio in and Soybean reduction as compared to hedges
Ajay 1206555 (2 Indian futures. based on constant hedge ratio.
Pandey 008). stock and Various Transaction cost in implementing
. June 2008 commodi models OLS, dynamic hedging using VAR-
ty futures VAR, and MGARCH may nullify some of
markets. VECM are the gains provided by it. Both
used to stock market and commodity
estimate derivatives markets in India
constant hedge provide a reasonably high level of
ratio. To know hedging effectiveness (90%) and
the stationarity it can be said that derivatives
they used unit markets in Indian context provide
root test, co useful risk management tool for
integration hedging and for portfolio
test, To diversification.
estimate In the sample the OLS shows the
dynamic value of 0.9696 and out of the
hedge ratios, sample OLS value is 0.93246 is
they use the value of future 1.
VAR-
MGARCH.
 15

NEED OF THE STUDY

This study on Commodity market is very much appreciable on the grounds that it gives deep

insights about the commodity spot and future market. It would be essential for the perfect way of

trading in commodity futures. Studies of this type are more useful to academicians and scholars to

make further insights into the various aspects of commodity futures in similar organizations. An

investor can choose the right underlying for investment, which is risk free. The study included the

changes in daily price movement and buying and selling signals to the selected commodity index.

This helps the investor to take right decisions regarding trading in Commodity spot and future

market.

1. There are numerous studies conducted on the Derivative market but very few studies are based

on commodity market.

2. Effect of Behavioural aspects of commodity market considered in the previous researches but yet

there is no study regarding determinants of commodity market.

3. The previous studies on commodity market focused mainly on agriculture sector. But none of the

study has been conducted on the metallic sector so far. Metallic sector prices are not only important

to manufacturers and end-users, but have long been used as a tool for monitoring economic and

market conditions. The prices of individual metals are essentially determined by supply and

demand. How these supply and demand determinants affect the metallic sector and what are the

others determinants which affect the prices of metallic sector. So, therefore, there is a need of study

on the metallic sector in the commodity market. So, research can be conducted for the metallic

sector.
16

OBJECTIVES OF THE STUDY

The objectives of the study provide the proper framework and layout of any research activities. To

make the present study more scientific following objectives are designed by the researcher and the

objectives are as follows-

1. To analyse the pattern of commodity spot and future market in India of Metallic

Sector.

2. To identify the major determinants which affect the commodity market.

3. To examine the impact of selected determinants on commodity spot and future indices

of Metallic Sector.

4. To predict the behavior of commodity spot and future market.

 17

RESEARCH DESIGN AND RESEARCH METHODOLOGY

Research design and research methodology are the important part of any research work.

SCOPE OF THE STUDY-

Commodity spot and future market index will be considered for the purpose of study.

SAMPLE SELECTION CRITERIA-

On the basis of previous reviews the Metallic sector as the sample in the Commodity Market has

been selected. Because, none of the study was conducted on the metallic sector.

SAMPLE SIZE-

Future and Spot index in metallic commodity sector MCX Metal will be taken into consideration as

the Sample size of the study. MCX Metal consists of 7 items such as – Gold, Silver, Copper, Zinc,

Aluminium, Nickel and Lead.

TYPE OF RESEARCH-

This study will be the Analytical type of the research.

DURATION OF THE STUDY-

For the purpose of analysis of the data a period of 3 financial years from 2014-2015 to 2016-2017

will be taken into consideration.

TYPE OF DATA-

In order to identify the determinants and analyse the determinants this study will be based on the

Secondary data.
18

DATA SOURCE-

The secondary data will be collected from the Web portals.

 Data related to the spot and future index will be collected from the Multi Commodity

Exchange websites i.e. http://www.ncdex.com & National Commodity Derivative

Exchange websites- http://www.mcxindia.com.

 Data for determinants (regarding some of identified determinants) will be collected from

stock exchange index i.e.-www.moneycontrol.com and www.bseindia.com.

 Data of investment (FII), oil prices, Exchange rates and gold prices rate will be collected

from ministry of finance, dipp.nic.in, sebi.gov.in and fipbindia.com,

www.mcxindia.com, www.moneycontrol.com, goldprice.org,

http://www.goldpricesindia.com/, www.oil-price.net, www.imf.orgdata.worlbank.org

and other information collected from other sources of secondary data will be journals,

books, newspapers, magazines and news etc.

HYPOTHESIS-

 H01 – There is no significant change in the pattern of Commodity Spot and Future market of

Metallic Sector in India.

 H02 – There is no significant impact of selected determinants on Commodity Spot and

Future Indices of Metallic Sector.

 19

STATISTICAL TOOL –

There are various techniques which will be taken into consideration in this study.

 Descriptive statistics will be used to know the average pattern & Trend will be used to

know the pattern movement of the series.

 Correlation will be used to know the relationship between the data series & Regression

(OLS-Ordinary Least Square) will be used to know the degree of the pattern and impact of

the variables.

 Factor Analysis will be used to identify the various determinants which has the effect on the

commodity metallic sector.

 ADF-Augmented Dickey Fuller Test will be used to know the stationarity and long term

existence in the data series.

 GARCH- Generalized Autoregressive Conditional Heteroskedasticity & ARCH-

Autoregressive Conditional Heteroskedasticity to check the data whether it will be highly

volatile and low volatile in nature.

 Other.
20

OBJECTIVE WISE RESEARCH METHODOLOGY

The researcher will use the following specific research methodology-

OBJECTIVES TOOLS AND TECHNIQUES.

1. To analyze the pattern of commodity spot To achieve this objectives researcher will
and future market in India of Metallic collect the metallic sector spot and future
Sector. secondary data from the websites
http://www.ncdex.com, &
http://www.mcxindia.com on three financial
year’s basis. Trend and correlation will be
used for the analysis purpose.

2. To identify the major determinants which To achieve this objective the researcher will
affect the commodity market. identify major determinants from the
previous studies and from the current
scenario (news). Factor Analysis will be
used for this objective.

3. To examine the impact of selected To achieve this objective researcher will

determinants on commodity spot and future analyse the determinants of metallic sectors.
indices of Metallic Sector. ADF, OLS will be used for this purpose of
study.

4. To predict the behavior of commodity This objective will be achieved by predicting

spot and future market. the behavior through creating ARCH,
GARCH, and other Appropriate model.
 21

PROPOSED CHAPTER PLAN

CHAPTER NO. NAME OF THE CHAPTERS

CHAPTER-1 INTRODUCTION

CHAPTER-2 REVIEW OF LITERATURE

CHAPTER-3 ANALYSIS OF THE FUTURE AND SPOT COMMODITY

MARKET OF THE METALLIC SECTOR.

CHAPTER-4 IDENTIFICATION OF THE VARIOUS DETERMINANTS.

CHAPTER-5 ANALYSIS AND INTERPRETATION OF THE

DETERMINANTS OF THE METALLIC SECTOR.

CHAPTER-6 PREDICTION OF THE DATA

CHAPTER-7 FINDINGS AND SUGGESTIONS

CONCLUSION

REFERENCES & BIBLIOGRAPHY

ANNEXURES
22

REFERENCES

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 23

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24

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3) Dougherty, C. (2007). Introduction to Econometrics. New Delhi: Oxford University Press.

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WEBSITES-

 www.jstor.org/stable/2352781

 http://www.mcxindia.com/sitepages/indexhistory.aspx

 http://metals.about.com/od/investing/a/Metal-Markets.htm

 http://www.ncdex.com/MarketData/LiveFuturesQuotes.aspx

 http://www.nicrindia.com/Pages/Workshop.aspx
 25

 www.ssrn.com

 Http://Zenithresearch.Org.In/

SARITA GAUTAM

Research Scholar

Dr. NIDHI SHARMA Prof. PRAMOD KUMAR

Supervisor Head, Dept of Accountancy & Law

Dept. of Accountancy &Law &

Dean, Faculty of Commerce

Dayalbagh Educational Institute

(Deemed University) Dayalbagh, agra-282005