MCX Comdex Structure

Need for the study of MCX Comdex

Theoretically, the Spot and the Futures prices of the assets are related and that a perfect correlation is expected, such that neither market leads the other, but is not so in real life due to the presence of imperfect information dissemination. An attempt is made to study the temporal relationship between the Spot and the Futures prices of the Commodity Market by analyzing the data of the Comdex.

Sanjay Sehgal, Namita Rajput, Rajeev Kumar Dua (2012) studied the price discovery relationship for Agricultural Commodities in Indian markets. They found an efficient price discovery process in place. They recommended the strengthening of the market regulatory framework. An emphasis on the autonomy of Forwards Market Commission (FMC) was made. Their study also revealed the need for well developed warehousing and market linkages. 

M Hernandez, Torero (2009) conducted Granger Causality test to determine the direction of information flows between Spot and Futures prices in the agricultural commodities. It was found that Spot prices are generally discovered in Futures Markets. They argued for establishment of sufficient food grain reserves globally, to fight the volatility in markets. 

The major findings were grading in chillies were still to be improved by providing standardized scientific practices. The relationship between the cost of production and capital investments made in the chilli processing unit were inversely correlated, where the Kudangol taluka incurred higher cost of processing compared to Hubli and Byadgi talukas. The ADF tests were run to find out the stationarity and the cointegration of the dry chilli price series. Hubli was found to be integrated for dry chillies whereas Kandangol and and Byadgi markets were not. The markets for chilli powder had the ill effects of uncertain weather conditions summed up with lack of labour, high cost of pesticides, parking, transportation etc. 

Many studies have been made focusing on trends in National Stock Exchange; efficiency in information flow between the two markets i.e. Spot and the Futures, Co-integration between both the markets. The study relating to Comdex of the Multi Commodity Exchange has not made. Hence, the study is taken up. 

There are 21 Commodity Exchanges in India, of which, 5 are National Exchanges and 16 are Regional Exchanges. Multi Commodity Exchange of India Limited (MCX), Mumbai, a National Commodity Exchange occupies 86.2% share in the domestic Commodity Derivative Market, leading the Indian Commodity Derivative Exchanges in terms of turnover and the number of contracts traded as indicated in Table 1. Hence MCX is taken up for the purpose of the study.