Derivatives And Price Risk Management: A Case Of Indian Commodity Cotton Futures And Spot Prices In India

Abstract

By using indications given by the commodity markets, farmers, growers, or producers can minimize the price risk and avoid a supply gut. The consumers of the output can minimize the price risk and ensure that the demand pressure is appropriately capped. In India National Commodity Derivatives Exchange of India (NCDEX) is an online professionally managed multi-commodity exchange. The study aims to study the volatility and caused effect between cotton futures price and cotton spot price from the period 2019 to 2022 daily data were collected from Multi Commodity Exchange (MCX). This study also analyzed the Johansen cointegration between the cotton spot price and cotton futures price from MCX. The study employed statistics tools such as descriptive statistics, unit root test (ADF test), cointegration test. The study found that existence of normality and absence of unit root in time series data, also risk was higher than the mean return of cotton futures and spot price. There was low positive correlation between cotton futures price and cotton spot price. Produced very low and least positive impact of cotton spot price on cotton futures price whereas low and positive impact of cotton futures price on cotton spot price.