Copper futures market of India: dissections of price discovery, volatility and hedging

Purpose This piece of research aims to investigate the influential direction of price dissemination, hedging efficacy and shock transmission of the copper futures market in India. Design/methodology/approach The study selects the high-frequency closing prices of cash and futures series data from the Multi-Commodity Exchange of India for seven years. To examine the objectives of the study, cointegration, the error correction model, EGARCH and the hedge ratio are employed. Findings In contrast to the short run, in the long run, information flows bidirectionally for price discovery. The futures market of copper indicates strong endogeneity in the short run. The study observes a lack of hedging efficacy in the full and sub-sample period. A shed of evidence is found in support of bidirectional shock transmission. The scalping index shows a large number of speculative activities in the copper futures market. Practical implications The study findings will help traders and portfolio managers in designing trading strategies and portfolio selection. The study answers the question for the hedgers regarding the number of futures positions they need to hold to avoid their cash exposure. Finally, the regulating agency and government will be able to frame policies for further developing the copper market. Originality/value The paper evaluates the most significant aspects of the copper futures market, viz. price dissemination, volatility and hedging efficacy. To the best of the authors’ knowledge, studies on efficacy and shock transmission in the context of the copper futures market in India are rare. Further, the study also contributes by exploring the price dissemination process and hedging of the metal futures market.