Testing for Linear and Non-Linear Causality in Spot and Future Prices of National Multi-Commodity Indices

Abstract

The present study investigates the linear and nonlinear causality between spot and future prices of three national indices maintained by Multi Commodity Exchange of India Ltd. (MCX). The data covers periods from September 1,2013 to August 30, 2014. Researcher has applied nonparametric test for nonlinear causality after controlling for wellknown calendar effects and longrun trends. The empirical results using both traditional and nonlinear causality tests indicate a stronger flow of information from futures to spot market and vice-versa. The research study result which confirms that future market is playing the role on the prices of spot market and vice versa.