The present article is an attempt to empirically investigate the long-term market efficiency and price discovery in Indian commodity futures market. The study has been conducted with eight commodities which include two agricultural commodities, two industrial commodities, two precious metal and two energy commodities. Sophisticated statistical methods like restricted cointegration and vector error correction model (VECM) are used to analyse the spot and futures prices time series. Restricted cointegration test shows that near-month futures prices for all the commodities are cointegrated with the spot prices but futures prices of all the commodities are inefficient to predict the future spot price. Indian commodity futures market evidenced as the thinly traded market (Kumar & Pandey, 2013, Journal of Indian Business Research, 5(2), 101–121) rejects the null hypothesis of efficiency and unbiasedness for all the eight commodities which reconfirms the result of Fortenbery and Zapata (1997, Journal of Futures Markets, 17(3), 279–301). The presence of short-term biases in the Indian futures market is evidenced in the results of VECM model which indicates the presence of informational efficiency. The statistically significant value of past prices of spot and futures confirm the short-term inefficiency and biasedness. The significant value of error correction term (ECT) of futures prices suggests that commodity futures are the most important indicator of commodity price movements. The important implication of the results is for market traders. They can use the futures prices to discover the new equilibrium and earn profits by transmitting it to the spot market. The better understanding of the interconnectedness of these market would be useful for policymakers who try to establish stability in the financial markets.

This article examines the hedge ratio and hedging effectiveness in agricultural (castor seed, guar seed) and non-agricultural (copper, nickel, gold, silver, natural gas and crude oil) commodities traded in National Commodity and Derivative Exchange (NCDEX) and Multi Commodity Exchange (MCX), respectively. Constant and dynamic hedge ratios are estimated by using ordinary least square (OLS), vector autoregression (VAR), vector error correction model (VECM) and vector autoregressive-multivariate generalized autoregressive conditional heteroskedasticity model (VAR-MGARCH). The results of constant as well as dynamic hedge ratios reveal that the Indian futures market provides higher hedging effectiveness in case of precious metal (65–75 per cent) compared to industrial metal and energy commodities (less than 50 per cent). Hedging effectiveness for castor seed and natural gas is even lower than 10 per cent. This study concluded that VECM and VAR-MGARCH both are providing higher hedging although VECM is providing the highest hedge ratio. It has been found that the next to near month futures provide better hedging effectiveness as compared to near month futures for crude oil and silver. It is recommended that the policy makers should pay attention towards the number of delivery centres, standard of quality of underlying assets and transaction costs in spot market.

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The present study documents the finding of a survey of brokers' perception pertaining to the recently introduced commodity derivatives market in India. The survey results show the brokers' assessment about trading/marketing activities and their perception of the benefits and concerns about commodity derivatives. It also throw some light on the perception of brokers about the efficiency of Indian commodity derivatives in performing the functions of price discovery, hedging effectiveness and volatility dynamics. The survey results show that high net worth individual are contributing significantly in the trade volume of commodity derivatives. Interestingly, retail investors are also emerged as the significant contributor in total turnover of brokers. Survey results exhibit that price discovery and hedging effectiveness functions are well performed by all the commodity futures except the energy commodities futures. Energy commodities, being the most volatile commodities, are perceived as having less hedging effectiveness as compared to others. Brokers are assenting on the high to moderate impact of open interest, volume and time to maturity on the volatility of the commodity futures derivatives.