Assessment of Price Volatility of Commodities traded on MCX India and relationship between Futures Price of selected Commodities and different Parameters on Economic Factors affecting Commodity Markets

Abstract

The Multi Commodity Exchange of India (MCX) selected for the study purpose. The objectives for the study are; to understand the basic knowledge of commodity market and the regulators of commodity market; to understand the concept of volatility and analyze the volatility of commodities; to study the relationship of commodities futures prices with different economic factors and understand the diversification benefits of commodity market. The commodities are traded under various categories at MCX were selected.  The categories are Agro commodities, Base Metal, Energy and Bullion. Each categories contains different commodities. The commodities like; Cardamom, Cotton, Crude Palm Oil, Mentha Oil, Aluminum, Copper, Lead, Nickel, Zinc, Gold, Silver, Crude Oil, Natural Gas selected for the analysis purpose. The commodities selected for the period of January 2009 to December 2019. The closing prices of commodities were selected and then used to calculate the returns. For the testing of different hypothesis under study various data have been downloaded from the Commodity Insights Yearbook. The Commodity Insights Yearbook published for different years by MCX, India. The data related to global supply, global consumption, Indian imports and spot prices for different commodities for the period of January 2009 to December 2019. The futures contract prices of different commodities also selected to calculate the spread between near month and far month futures prices to identify the situations like Contango and Normal Backwardation.

 The data analysis includes the calculation of historical volatility with the help of returns calculated of different futures contract prices of commodities. The volatility helps the investors in making the investment related decisions. The hypothesis under study was formed to check the relationship between commodities futures contract price with the global supply, global consumption, Indian Imports and spot prices of that commodities. The hypothesis was tested with the help of descriptive statistics, correlation, regression and ANOVA. The results of this study are useful to investors who wish to invest in commodity markets. There are various investment channels available for investment, but commodities are not so popular. This research helps to understand all aspects of the commodity market and the relationship between commodities and other economic parameters. The study also focuses on the calculation of historical volatility of prices, which will help to obtain short-term profits for investors. The portfolio diversification helps the investors in understanding the importance of commodities as an important investment avenue.