Volatility Spillovers in Indian Commodity Futures Markets and WPI Inflation

Spurt in the growth in the volumes of commodity markets in India is cause of concern for the producers, regulators, market participants and society at large. Galloping prices of commodities globally and in India in the last few years has raised questions on the demand supply balances and also on the performance of commodity spot and derivative markets. A logical feeling of arbitrage and inefficiency cannot be ruled out. Evidence of volatility in the spot markets and consequent impact on inflation measured by Wholesale Price Index (WPI) raises concerns on the activities of speculators, hoarders and black market profits. Inflation is national and global concern to the governments and political fate of the leaders especially in India. We explore whether the efficiency exists between commodity futures and spot markets using the data derives for three commodity exchanges MCX, NMCE and NCDEX. We, further examine the association between the spot price of commodities and WPI. We find evidences of efficiency in most of the sample commodities, though it may depart in some time periods and establish that huge volatility of spot prices and other market imperfections and irregularities are responsible for lifting WPI.