Price Discovery and Market Efficiency in Indian Futures Market

Dr. Chinmaya Behera

Abstract

Price discovery is one of important economic functions of futures market as it gives competitive reference (futures) price from which spot price can be derived. The study examines price discovery and market efficiency in the Indian futures market using metal and energy futures. Sample data consist of daily futures and spot closing price from 1st September, 2005 to 30th December 30, 2011 for gold, silver, copper, and crude oil, and from 1st November , 2006 to 30th December, 2011 for natural gas based on availability. Using co-integration and error correction mechanism, the study finds the fair price discovery in the futures market. The study also finds that price discovery takes place first in the futures market then transgresses to spot market. Ratio of standard deviation is used to check the market efficiency in the futures market and if is found that gold market is not efficient as it fails to incorporate all the information available in the market.

Keywords

Futures pricing, efficient market JEL Classification: G13

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Cites this article as

D. C. Behera "Price Discovery and Market Efficiency in Indian Futures Market", International Journal of Innovative Research in Engineering & Management (IJIREM), Vol-2, Issue-4, Page No-40-47, 2015. Available from: