Determinants of Successful Agri - Futures Contracts in India

Abstract

The study empirically examines the factors which impact the success of the Agri commodity futures contracts. Daily data from July 2012 to July 2017 is used for 22 commodities traded on the three national commodity derivatives exchanges and analyzed in a panel data analysis framework. The results of the study suggest that higher volatility in the spot and futures market, competition in terms of multiple exchange listing, the age of the futures contract, lot size and tick size increase the success potential of the agri futures contract. The international listing, the imposition of Commodity transaction tax, a higher number of levels in the value chain and greater geographical coverage in the spot market reduces the liquidity for the contract. Thus, the study identifies important market characteristics and elements of contract design that have implications for the success of agri commodities futures contract in India.

Lessons from the Demise of the Brent Crude Oil Futures Contract on the Singapore Exchange

“…They find that, for a monopolistic exchange futures contract to be volume-maximizing, it must provide an "innovation" perfectly correlated with the endowment differential, the difference between the endowments on the long and short sides of the market. However, Agrawal et al (2019) show that price volatility in both the spot and futures markets of agri-commodity futures contracts is an important contributor to the success of a futures contract. Corkish et al (1997) study on LIFFE confirms the existence of a first-mover advantage.…”

Determinants of the successful single stock futures market in Thailand

“…According to Westerholm and Ahmed (2013), "at the end of 2007 the Australian Securities Exchange decided to cease trading in individual stock futures, due to lack of interest and the availability of alternative products such as low exercise price options, contracts for difference and warrants" (p. 4). Other failed futures contracts are also discussed in prior studies (see, e.g., Johnston & McConnell, 1989; http://dx.doi.org/10.21511/imfi.19 (2).2022.24 Perversi et al, 2002;Till, 2015). Since the success of the exchange depends on its trading volume and liquidity, it is necessary to identify factors that the exchange should consider in selecting new products.…”

“…http://dx.doi.org/10.21511/imfi.19(2).2022.24Note: Contract is defined as a new contract in the year it was issued.…”

“…Note: *, ** and *** denote statistical significance at the 10%, 5% and 1% level, respectively. http://dx.doi.org/10.21511/imfi.19(2).2022 24. …”