Global Financial Crisis and Price Risk Management in Gold Futures Market- Evidences from Indian & US Markets

Narinder Pal Singh
Archana Singh
JEL codes: 
C22 - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models, G01 - Financial Crises, G14 - Information and Market Efficiency; Event Studies, Q02 - Global Commodity Crises.
Over the globe, gold is one of the most traded commodities. Due to its gobal demand, gold is traded in both spot and futures market. Price risk management is a fundamental but vital function of futures market. To effectively discharge this function, futures market has to be efficient. Thus, it is important to analyze efficiency of futures market. None of the studies in literature analyses price risk management role of gold futures in India and US with reference to global financial crisis of 2008-09. Thus, this study aims at investigating the gold futures role in managing price risk related to gold spot market before and after the crisis in Indian and US markets. The results of Johansen’s cointegration test indicate that the gold spot and futures markets are cointegrated in both the sub-periods in both India and US. Granger causality test results signifies that gold futures play an important role in price discovery in both Indian and US markets, with some feedback from spot market at Multi Commodity Exchange (MCX), India . However, the price discovery role of gold futures markets has strengthened after the crisis in both the markets. Thus, we conclude that gold futures market performs price risk management function in the pre and the post–crisis periods at Multi Commodity Exchange (MCX), India and New York Merchantile Exchange (NYMEX) Comex, US.
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