Coffee price dynamics: Volatility, Causality & Co-integration in spot and future markets

Abstract

Commodity market is a place which creates platform for market participants to trade in commodities to hedge their positions from contingencies. The financial experts & researchers had always been captivating on the association between spot price & future price across various investments, regions & countries over the past several decades. There is a necessity for a robust mechanism & framework in agricultural commodity derivatives due to its transition over the years. So, the author gathered secondary data (i.e. daily closings of spot & futures for 6 years) from well-known exchanges. In this paper the author evaluates the relationship between spot & future prices for coffee by considering the dataset of 6 years. The mission of this paper is to investigate the volatility, causation & co-integration between 2 variables (i.e. Spot & Future prices of Coffee). The study determines the volatility in the prices & also the long run relationship between spot & future prices. Based on these observations the farmers, traders & government can make suitable decisions in order to hold positions or to liquidate and also to make required changes in the policies respectively.