Market Efficiency of Base Metal Futures in India: An Empirical Evidence

Base metals are the key input used in different critical industries which are vital to the economy. After lifting the prohibition on commodity futures trading in 2003, there has been a surge in the volume, value and open interest of the commodity futures segment in India. Considering the growth momentums of futures, the article is an attempt to examine the market efficiency of the metal futures in India. The study examines the weak-form market efficiency of different base metal futures contracts traded at Multi Commodity Exchange of India. For the said objective, the study uses fully modified ordinary least square and dynamic ordinary least square methods. The study concludes that there exists a long-run cointegrating relationship between the spot and futures prices of different base metals, and it is found that the base metals futures markets of India are less efficient. The period of the study is limited to 7 years, and the study has considered only near-month contracts. Future research will explore the efficiency of the base metal market of other developing nations. JEL Codes: G13, G14, C58