© 2015 PP House A Study on Growth and Volatlity in Cash and Futures Market of Castor in India Rachana Kumari Bansal * and Y. C. Zala Dept. of Agricultural Economics, B. A. College of Agriculture, Anand Agricultural University, Anand, Gujarat (388 110), India International Journal of Bio-resource and Stress Management 2015, 6(5):615-618 Abstract This study has analyzed the growth and volatility in cash/spot and futures prices of castor. The time series data on WPI (Wholesale Price Indices) were obtained from offce of Economic Advisor, Govt. of India for a period of 1994-2013 and the data on spot and futures prices were collected from NCDEX (National Commodity Derivative Exchange of India Ltd.) website for a period of 10 years i.e. July, 2004 to July, 2014. The results revealed that in post futures period CGR (compound growth rate) for the wholesale prices of castor was higher as compared to the pre-futures period and it was signifcantly positive, which shows increment of prices in castor. Further it indicates that it is not only due to the futures trading but other factors like-consumption and export pattern and government policies were responsible for that. The range of percentage of CV (Coeffcient of Variation) in Post futures period was less (3.35% to 12.05%) as compared to the pre-futures period (2.74% to 15.95%). Price trend is also found in spot and futures prices and in the year 2011-12 prices were high due to export coupled with weakness in Indian rupee, attracted the exporters. Analysis of price volatility has revealed its persistence in spot and futures prices for a longer period of time as the sum of the coeffcient of ARCH (Auto Regressive Conditional Heteroskedasticity-α) and GARCH (Generalized Auto Regressive Conditional Heteroskedasticity-β) were estimated 1.00 and 0.91 (closer to one), which further indicates the price discovery and usefulness of futures trading. Article History Correspondence to Keywords Manuscript No. AR1370 Received in 10 th April, 2015 Received in revised form 28 th September, 2015 Accepted in fnal form 4 th October, 2015 * E-mail: rachi.bansal22@gmail.com Castor, futures price, price discovery, volatility, wholesale prices DOI: 10.5958/0976-4038.2015.00094.9 1. Introduction Indian policy makers have traditionally coped with uncertainty and risks associated with price volatility by resorting to policy instruments which attempted to minimize or eliminate price volatility-a virtually closed external trade regime, price control, pervasive government controls on private sector activities, extensive market interventions and crop insurance. Over the time, in the face of greater price exposure and thereby the urgent need for price risk management, importance of commodity futures trading and other tools for the transfer of risk is increasingly being realized (Kataria and Chahal, 2007). Futures trading is useful to producer because he can get an idea of the price likely to prevail at a future point of time and, therefore, can decide between various competing commodities, the best suits him. Starting with trade in 7 commodities in 1999, futures trading is now available in 113 commodities through 17 exchanges (six of these have status of National Exchanges), 5098 members and 40,15,781 clients registered with the exchanges and 25,000 terminals spread over more than 800 towns/cities of the country provide access to trading platforms (Forward Market Commission, 2014). The cumulative value and volume of futures trade for the fnancial year 2012-13 was ` 170 trillion and 1451 mt. Share of agricultural commodities in total value and volume of futures trade was 13.21 percentage i.e. ` 21.56 trillion and 30.30% i.e. 439.8 mt respectively (Economic Survey of India, 2013). Castor has 5.87% shares to the value of commodities traded through NCDEX, Mumbai. During fnancial year 2012-13, volume and value of castor traded under NCDEX was 24.353 mt and ` 938.28 billion. Overall, the Indian commodity market has shown tremendous growth in terms of both value and the number of commodities traded in the last fve years. So, people perceive that commodity futures trading are contributing to speculation driven rise in prices. This is important to see, whether futures trading will really affecting the prices? It is also being expected that the futures trading has made signifcant impact on the volatility of the spot and futures prices over period. There is a more important question to know regarding prices, both spot and futures, whether spot will affect futures prices or vice-versa or how the transmission of prices occurs between the markets. Short Research Article 615