Market Efficiency of the Hessian and Sacking Transactions in a Regional Commodity Exchange of West Bengal, India

Arindam Laha, Subhra Sinha

Abstract


The price stabilization function of the commodity futures market is conditioned upon the efficiency of the market. An attempt has been made in this paper to test the efficiency of the hessian cloth and sacking bags’ contracts transactions in the East India Jute and Hessian Commodity Exchange - the oldest commodity-specific regional exchange in India - so as to gauge its contribution in the economically significant roles of price stabilization and price discovery in the underlying commodity spot market. Empirical results, based on the Johansen cointegration test, suggested that most of the hessian and sacking bags’ contracts were inefficient in the long run. In the short run, the sacking bags’ forward market exhibited short-run inefficiencies and pricing biases. However, large positive deviations from the co-integrating relation between the forward and spot prices of hessian cloth contracts were significantly corrected in the following period in the forward market. Therefore, the paper concludes, hessian forward contracts are relatively more efficient as compared to sacking bags’ contracts.

Keywords: Market efficiency, East India Jute and Hessian Commodity Exchange, Hessian, Sacking, Cointegration test, Vector Error Correction.


Keywords


Market efficiency, East India Jute and Hessian Commodity Exchange, Hessian, Sacking, Cointegration test, Vector Error Correction

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