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Abstract
The present study highlights the context of wheat futures trading in India and examines its
performance in terms of price transmission between Indian and US futures, domestic futures and
spot markets, and, extent of integration between those markets. Role of wheat futures in price
stabilisation/volatility reduction and its relevance to the small scale production system in the
country have also been examined. Evidence of unit root in price series and a strong integration
between spot and futures markets in India were found through Johansen’s test. Despite the
integration of domestic markets, US and Indian futures are not integrated in the long-run.
Application of Generalized auto-regressive conditional heteroscedasticity (GARCH) model
indicated a high degree of volatility in spot prices right from inception of trading and revival of
trading, however it was low during the ban period. This showed that the function of price
stabilisation of futures trading has not been fulfilled. Despite futures market serving as a
platform for price discovery and hedging, low marketed surplus and the complexity in trading
avoids farmers’ participation. On the whole, the study concludes that wheat futures are efficient
in price transmission but inefficient in price stabilisation and warrants for awareness, margin
money discount and aggregating farmers produce so that farmers can participate and take
advantage of hedging in an uncertain situation of the farm business.