The lead–lag relationship between spot and futures prices : empirical evidence from the Indian commodity market

Abstract

This paper examines the relationship between spot and futures prices in the Indian commodity market for the period 2009 to 2020. The ARDL bounds-testing technique is used to explore the long-run relationship between these two prices. A vector error correction model is then used to reveal the nature of Granger causality between the two. Six commodities, namely aluminum, copper, crude oil, gold, nickel, and silver, and three indices, namely agricultural, livestock, and precious metals, are used for this empirical process. The results indicate a long-run equilibrium relationship between the spot and futures prices of these commodities. The causality analysis reveals unidirectional causality in the long run from the spot to the futures price for aluminum and copper, and both bidirectional and unidirectional causality in the short run between the two prices for aluminum, copper, gold, and silver.