Can the FMCG Stock Market Investors Hedge the Risk in Agricultural Commodity Markets? Empirical Evidence from India
The emerging economy of India counts agriculture as its top priority, suggesting that the prices of these commodities affect the stock market and domestic inflation. This paper investigates the long-run and short-run interactions between the select agricu
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Can the FMCG Stock Market Investors Hedge the Risk in Agricultural Commodity Markets? Empirical Evidence from India Manogna R. Leshma
and Aswini Kumar Mishra
Abstract The emerging economy of India counts agriculture as its top priority, suggesting that the prices of these commodities affect the stock market and domestic inflation. This paper investigates the long-run and short-run interactions between the select agricultural commodities and Fast-Moving Consumer Goods (FMCG) stock index by applying daily data using the Autoregressive Distributive Lag (ARDL) bound test to investigate the cointegration relationship. The findings indicate the absence of cointegration between National Commodity and Derivative Exchange (NCDEX) agricultural commodities and Bombay Stock Exchange (BSE) FMCG index. Additionally, this study uses the Toda and Yamamoto approach of Granger causality test to analyze the causal relationship between variables under study. The evidence reveals absence of causal relationship between FMCG index and agricultural commodities except for cottonseed, rape mustard seed and jeera. Furthermore, this test confirms only unidirectional causal relationship from these commodities to FMCG index. Finally, our analysis provides an opportunity for investors to hedge their risk due to the absence of causality and cointegration between FMCG index and agricultural commodities by diversifying their portfolio in both the markets. Keywords Agricultural commodities · Johansen cointegration · ARDL bound test · Causal relationship · FMCG · Toda and Yamamoto approach of granger causality test
R. L. Manogna (B) · A. K. Mishra Department of Economics, BITS Pilani K K Birla Goa Campus, Sancoale, Goa, India e-mail: [email protected] A. K. Mishra e-mail: [email protected] © The Author(s), under exclusive license to Springer Nature Switzerland AG 2020 A. K. Mishra et al. (eds.), The Financial Landscape of Emerging Economies, Accounting, Finance, Sustainability, Governance & Fraud: Theory and Application, https://doi.org/10.1007/978-3-030-60008-2_5
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5.1 Introduction Indian economy provides major emphasis on agriculture with consistent efforts to transform the agricultural scenario of the country. Almost two-thirds of the population depend on agriculture for their livelihood. Efficient marketing of agricultural commodities has been undertaken to protect the interest of both producer and consumer. For a developing economy like India, agricultural commodities like oilseed cakes, spices and grains contribute majorly in earning a sizeable foreign currency through its exports and managing the imports. National Commodity and Derivative Exchange (NCDEX) is one of India’s leading commodity exchanges which majorly trades on agricultural commodities. The efficient market hypothesis states that the news entering the market can directly affect the perception of investors, causing them to revise their portfolio of investments and the changes immediately impact the financial markets (Tursoy a
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