Financialisation of Commodity Market in India : A Closer Look at the Evidence

Pratap Kumar Jena
JEL codes: 
G1 - General Financial Markets, G13 - Contingent Pricing; Futures Pricing.
In recent years, it is observed that there is a huge inflow of investment towards a commodities futures market in India. At the same time, we are also facing very high price and also volatility in commodity prices in India. Therefore, this has generated a heated debate about whether financialisation distorts commodity prices in India. Though there is the lack of studies on the financialisation of commodity market in India, this paper made an attempt to empirically examine the financialisation of Commodity market in India using the time series techniques. From the unconditional correlation, it is found that commodity index price is highly correlated with the stock index price during the study period. The causality test indicates that commodity price granger causes to the stock price in India but reverse is not. Therefore, I found no strong evidence on the financialisation of commodity markets in India. This result is quite similar to the report of the Reserve Bank of India (RBI, 2009-10).
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