Price Nexus between Spot and Futures Market of Lead: An Econometric Investigation

Lead is the blue-grey metal found in the earth’s crust which can be recycled infinitely without deteriorating its chemical properties. It is not only ductile but also malleable and corrosion-resistant.This piece of research identifiesthemechanism ofprice discovery between the physical and futures marketsof lead and examines the hedging efficacy of the lead futures.The study is focused on the Indian lead markets and the study period covers from 2013 to2020.In the short run price discovery is observed to be bi-directional whereas, in the long run, information flows from the futures to its corresponding cash market. Spot market fails to discover the futures price of lead in the long run. The study finds a lack of hedging efficacy in the lead futures market. It is found that the average scalping index over the study period is almost 429 percent which indicates speculative activities in the lead futures market. This piece of research will be helpful for the hedgers in selecting the number of futures contracts they should hold to mitigate the spot market risk. The regulators will be able to frame policies to develop and deepen the lead markets.