Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals
The study empirically measures the average and time-varying contribution of the spot and futures market to the price discovery of benchmark Indian precious metals from June 2005 to March 2023. The two most popular precious metals in India, i.e., Gold and Silver, were selected for the study. The aver...
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Faculty of Management & Finance, University of Colombo
2024-06-01
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| Series: | Colombo Business Journal |
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| Online Access: | https://mgmt.cmb.ac.lk/cbj/wp-content/uploads/2024/07/1.-CBJ-2023-FIN-2-V15I1-Time-varying-price-discovery.pdf |
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| author | Chanchal Saini Ishwar Sharma |
| author_facet | Chanchal Saini Ishwar Sharma |
| author_sort | Chanchal Saini |
| collection | DOAJ |
| description | The study empirically measures the average and time-varying contribution of the spot and futures market to the price discovery of benchmark Indian precious metals from June 2005 to March 2023. The two most popular precious metals in India, i.e., Gold and Silver, were selected for the study. The average contribution is measured through VECM (Vector Error Correction Model) and CFW (common factor weights). Additionally, for getting time-varying contribution, VECM is reformulated into state space form and Kalman filter and smoothening are applied for computing time-varying CFW. Findings reveal that price discovery depicts time-varying behaviour during the study period. While most of the time, futures lead the spot, in case of any shocking news, the spot market dominates the futures as noise trading happens in the futures market for both precious metals, i.e., Gold and Silver. Furthermore, futures market volume, volatility, and COVID-19 negatively affect the price discovery in both precious metals. |
| format | Article |
| id | doaj-art-3d9cf7b591424e2f979b02bc2fa0fae0 |
| institution | Kabale University |
| issn | 1800-363X 2579-2210 |
| language | English |
| publishDate | 2024-06-01 |
| publisher | Faculty of Management & Finance, University of Colombo |
| record_format | Article |
| series | Colombo Business Journal |
| spelling | doaj-art-3d9cf7b591424e2f979b02bc2fa0fae02025-01-04T07:38:11ZengFaculty of Management & Finance, University of ColomboColombo Business Journal1800-363X2579-22102024-06-0115112510.4038/cbj.v15i1.165Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious MetalsChanchal Saini0https://orcid.org/0000-0003-1285-6255Ishwar Sharma1Department of Commerce, Indira Gandhi University, IndiaDepartment of Commerce, Indira Gandhi University, IndiaThe study empirically measures the average and time-varying contribution of the spot and futures market to the price discovery of benchmark Indian precious metals from June 2005 to March 2023. The two most popular precious metals in India, i.e., Gold and Silver, were selected for the study. The average contribution is measured through VECM (Vector Error Correction Model) and CFW (common factor weights). Additionally, for getting time-varying contribution, VECM is reformulated into state space form and Kalman filter and smoothening are applied for computing time-varying CFW. Findings reveal that price discovery depicts time-varying behaviour during the study period. While most of the time, futures lead the spot, in case of any shocking news, the spot market dominates the futures as noise trading happens in the futures market for both precious metals, i.e., Gold and Silver. Furthermore, futures market volume, volatility, and COVID-19 negatively affect the price discovery in both precious metals.https://mgmt.cmb.ac.lk/cbj/wp-content/uploads/2024/07/1.-CBJ-2023-FIN-2-V15I1-Time-varying-price-discovery.pdftime-varying price discoveryindian precious metal marketstate space modelkalman filter and smoothening |
| spellingShingle | Chanchal Saini Ishwar Sharma Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals Colombo Business Journal time-varying price discovery indian precious metal market state space model kalman filter and smoothening |
| title | Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals |
| title_full | Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals |
| title_fullStr | Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals |
| title_full_unstemmed | Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals |
| title_short | Futures Leads the Spot but Why not so When Market in Shocks? A Time-Varying Price Discovery of Indian Precious Metals |
| title_sort | futures leads the spot but why not so when market in shocks a time varying price discovery of indian precious metals |
| topic | time-varying price discovery indian precious metal market state space model kalman filter and smoothening |
| url | https://mgmt.cmb.ac.lk/cbj/wp-content/uploads/2024/07/1.-CBJ-2023-FIN-2-V15I1-Time-varying-price-discovery.pdf |
| work_keys_str_mv | AT chanchalsaini futuresleadsthespotbutwhynotsowhenmarketinshocksatimevaryingpricediscoveryofindianpreciousmetals AT ishwarsharma futuresleadsthespotbutwhynotsowhenmarketinshocksatimevaryingpricediscoveryofindianpreciousmetals |