Commodities Derivative Price Behavior in Emerging Market

Sharon K Jose, Prashoban Palakkeel

Abstract


Economic studies on the Commodity price behaviour in the developed markets has addressed a lot of issues in the commodity price dynamics. This can be attributed to the existence of uninterrupted trade and the data can be traced to almost 100 years, for example, Chicago Mercantile Exchange, Chicago Board of Trade or London Metal exchange. The commodities futures trade started in the same time period in India but the banning of futures trade resulted in lack of availability of data which has kept Indian research at a nascent stage. This paper tries to explore various developments with the commodities prices in the emerging commodity market. Commodity prices have been modelled using state-space specification. The forecasts are most efficient for most of the commodities considered under the study. It shows that state-space specification and Kalman filter algorithm is an ideal method for modelling and forecasting commodity prices in the emerging market. Forecasting the right prices in such economies will help the framer to make better storage decisions.


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