The Commodity Futures Volatility and Macroeconomic Fundamentals - The Case of Oil and Oilseed Commodities in India

Year 2018, Volume: 10 Issue: 2, 33 - 50, 01.09.2018

Suranjana Joarder

https://doi.org/10.33818/ier.491326

Abstract

Food price inflation results in uncertainty in the food markets and reduces real income as
food covers a relatively large share of the households’ expenditures in the LDCs. As price
of food commodities are primarily governed by the underlying demand and supply
conditions, we have analyzed the association of futures price volatility with the underlying
macroeconomic variables. A strong association of futures price volatility with the
underlying macro variables will imply that futures market operates based on the
implications of the macroeconomic policies and are not merely driven by speculative
motive. The association between futures price and the macroeconomic variables will help
in developing policies aimed at stabilizing food prices. For our study we have considered
the five major oil and oilseed contracts traded on National Commodity and Derivatives
Exchange. We have considered the nearest three month contracts traded on the exchange.
In our study we observe that Gross Domestic Product (GDP) and Index of Industrial
Production (IIP) growth rate have significant impact on futures price volatility. We have
also found a significant relation between futures price volatility and inflation. These
findings have important implications for commodity production decision making,
commodity hedging and commodity price forecasting.  

Keywords

Food Price Volatility, Agricultural Commodities, Futures Price Volatility, Spot Price Volatility, Macroeconomic

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