A Study on Futures Trading in Commodities With Special Reference to Rubber

Abstract

Futures trading in Commodities has three specific economic functions newlineviz. price discovery, hedging and reduction in volatility. Natural rubber newlinepossesses all the specifications required for futures trading. Commodity newlinefutures trading in India attained momentum after the starting of national level newlinecommodity exchanges in 2003. The success of futures trading depends upon newlineeffective price risk management, price discovery and reduced volatility which newlinein turn depends upon the volume of trading. In the case of rubber futures newlinemarket, the volume of trading depends upon the extent of participation by newlinemarket players like growers, dealers, manufacturers, rubber marketing newlineco-operative societies and Rubber Producer s Societies (RPS). The extent of newlineparticipation by market players has a direct bearing on their awareness level newlineand their perception about futures trading.In the light of the above facts and the review of literature available on newlinerubber futures market, it is felt that a study on rubber futures market is newlinenecessary to fill the research gap, with specific focus on (1) the awareness and newlineperception of rubber futures market participants viz. (i) rubber growers, newline(ii) dealers, (iii) rubber product manufacturers, (iv) rubber marketing newlineco-operative societies and Rubber Producer s Societies (RPS) about futures newlinetrading and (2) whether the rubber futures market is fulfilling the economic newlinefunctions of futures market viz. hedging, reduction in volatility and price newlinediscovery or not.The study is confined to growers, dealers, rubber goods manufacturers, newlinerubber marketing co-operative societies and RPS in Kerala. In order to achieve newlinethe stated objectives, the study utilized secondary data for the period from newline2003 to 2013 from different published sources like bulletins, newsletters, newlinecirculars from NMCE, Reserve Bank of India (RBI), Warehousing Corporation newline and traders. The primary data required for this study were collected from rubber newlinegrowers, rubber dealers, RPS and Rubber Marketing Co-operative Societies and newlinerubber goods manufacturers in Kerala. Data pertaining to the awareness and newlineperception of futures trading, participation in the futures trading, use of spot newlineand futures prices and source of price information by dealers, farmers, newlinemanufacturers and cooperative societies also were collected. Statistical tools newlineused for analysis include percentage, standard deviation, Chi-square test, newlineMann Whitney U test, Kruskal Wallis test, Augmented Dickey Fuller test newlinestatistic, t- statistic, Granger causality test, F- statistic, Johansen co integration newlinetest, Trace statistic and Max Eigen statistic.