The Behaviour of Spot and Forward Prices: Evidences from Hessian and Sacking Markets in West Bengal

Abstract

An attempt has been made in this paper to draw inferences on the efficiency of the hessian and sacking markets by analyzing the behaviour of spot and forward prices. The study is based on available secondary data sources from the Annual Reports of the East India Jute and Hessian Exchange Ltd. (EIJHE). To test the Efficient Market Hypothesis in weak sense, the study carried out two tests: auto-correlation test and run test. Empirical results of both the test procedures establish significant statistical evidences of interdependence of successive individual series on spot and forward prices at different periods of time in the hessian and sacking markets. Thus the results lead to rejection of Efficient Market Hypothesis in weak sense in the hessian and sacking markets. The inefficiency in the market is mainly attributable to the thin trade volume and infrequent trading of hessian and sacking in EIJHE, which ultimately resulted in declining liquidity of the market. The study, therefore, recommends implementing several innovative steps in the operation of this regional exchange so as to regain the glory of the oldest derivative exchange in India. To exploit the location advantage of EIJHE in trading raw jute and jute products, a well developed jute spot market in West Bengal is considered as the pre-requisite.