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Impact of COVID-19 trade suspension on price discovery in FPO-traded agri-derivatives

Kripamay Baishnab, Piyush Kumar Singh

Journal of Modelling in Management

ISSN: 1746-5664

Article publication date: 8 November 2024

Issue publication date: 19 February 2025

105

Abstract

Purpose

This study aims to examine whether agricultural commodities exhibited deviations in the lead-lag relationship between future and spot prices of farmer producer organizations (FPOs) traded commodities in the Indian derivative market after trade suspensions during Covid-19. The study may help buyers and sellers to get a fair price for their commodities after lockdown-trade disruptions.

Design/methodology/approach

The study applied the Granger causality (GC) test and the vector error correction model (VECM) to analyse short-run and long-run lead-lag relationships. Moreover, the study examined the pre-post-trade suspension effect on the lead-lag relationship of commodity prices.

Findings

The GC test results show that five out of the 13 agri-commodities have changed their lead-lag relationship from future to spot in the short run. Simultaneously, VECM captured changes in the lead-lag relationship for the same five commodities in the long run due to trade suspensions.

Practical implications

The findings indicate a reverse lead-lag relationship between future and spot prices for aforesaid commodities after trade suspension. The stakeholders may use the lead prices for these commodities to perform a fair trade. The study may be helpful in structuring price discovery strategy to achieve optimal price and efficient derivative trading.

Originality/value

To the best of the authors’ knowledge, this is the first study examining the effects of trade suspension on price discovery in FPO-traded agri-derivatives caused by the COVID-19 pandemic.

Keywords

Acknowledgements

Acknowledgment: Not applicable.

Funding statement: Not applicable.

Ethics statements: The paper follows all the parameters provided by the journal.

Conflict of interest disclosure: There is no conflict of interest to disclose.

Citation

Baishnab, K. and Singh, P.K. (2025), "Impact of COVID-19 trade suspension on price discovery in FPO-traded agri-derivatives", Journal of Modelling in Management, Vol. 20 No. 2, pp. 537-563. https://doi.org/10.1108/JM2-04-2024-0105

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

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