CONVERGENCE AND CAUSALITY BETWEEN SPOT AND DERIVATIVE METAL CONTRACTS OF MCX

Abstract

Base metals, which are abundant, relatively inexpensive, and prone to oxidation, form the backbone of the Indian economy by supporting industrial growth, infrastructure development, and manufacturing. Copper and aluminum, two key base metals, are widely traded on the Multi Commodity Exchange (MCX) in both spot and derivative markets, reflecting their economic significance and utility in various sectors.

This study examines the convergence between spot and derivative (futures) contracts for copper and aluminum on MCX, using data collected since 2009. To assess both long-term and short-term convergence, the Autoregressive Distributed Lag (ARDL) model was employed. Additionally, the Toda-Yamamoto Granger Causality test was used to analyze the direction of causality between spot and futures prices.