The commodity derivatives markets in India remained subdued for almost 4 decades due to prohibitions and excessive regulations till 2002, when the Government decided to permit national level electronic exchanges like MCX to trade in futrures contracts on commodities. Since then, the commodity derivatives markets have witnessed phenomenal growth in trading. The equity markets, on the other hand, were well established much before. During stock markets went through prolonged bearish state starting from January 2008 and continue to remain so, with minor improvements now and then. Commodity derivatives markets witnessed a steady growth during the same period, lead primarily by the growth in trade in bullion contracts. The volume of trade in bullion rose from Rs.17.26 trillion in 2007-08 to Rs.101.82 trillion in 2011-12, with CAGR of 156%. This kind of growth pattern raised several questions like whether there is any relationship between the equity and commodity market movements in India or are they moving independently.
In a recent research work, it was found these two markets do not exhibit statistically significant co-movements (or long term equilibrium in movements). The study was conducted based on the relationship between the movements of equity markets (measured by NSE Nifty and BSE Sensex) and commodity markets (measured by MCX Comdex, Metal and Energy indices). Period of the study was 4 years from January 2008 to December 2011. Correlation and Engle-Granger Test for Cointegration were used to analyse the data. Though there was positive correlation between both the markets (about 0.60), the Cointegration test proved that there was no significant co-movement between these two markets.
(The above post is based on a research paper co-authored by me and Dr. M R Shollapur, which was presented in an International Conference recently at Bangalore)
In a recent research work, it was found these two markets do not exhibit statistically significant co-movements (or long term equilibrium in movements). The study was conducted based on the relationship between the movements of equity markets (measured by NSE Nifty and BSE Sensex) and commodity markets (measured by MCX Comdex, Metal and Energy indices). Period of the study was 4 years from January 2008 to December 2011. Correlation and Engle-Granger Test for Cointegration were used to analyse the data. Though there was positive correlation between both the markets (about 0.60), the Cointegration test proved that there was no significant co-movement between these two markets.
(The above post is based on a research paper co-authored by me and Dr. M R Shollapur, which was presented in an International Conference recently at Bangalore)
hi .. sir .. yes there is relationship b/w equity markets and commodity markets(bullion) coz .. when index is down bullion markets go up and when index is up bullion markets come down .. tat is coz .. investor shift there funds from equity markets to bullion markets..y coz by looking into rupee appreciation and depreciation the index go up and down.. Ex :- when gold dollar is 1600 at the rs 55 then gold price is 28295 and at same 1600 dollar and rs is 53 then gold price is 27265. so there is a relationship b/w index and bullion markets...sorry sir if any thing is worng.
ReplyDeleteRaghu (2005) batch
Thanks Raghu for sharing your experience. People like you who are active in trading recognise every pulse of the market.
ReplyDeleteRaghu...Let me add one more point. It is known (or commonly felt) that when equity markets are bearish, people shift money to commodities and vice-versa. But in our research, we could not establish this completely, as these two markets did not indicate negative correlation. It is true, that they were not trending together, but whether they were trending exactly in opposite directions, is something difficult to conclude.
ReplyDelete