Is Momentum Effect Present in Indian Commodity Market?

Abstract

In this study, we examine if short term and long term momentum patterns present in commodity futures in Indian commodity futures market. The study employs data of 16 commodities which include agricultural, energy, and metal and the data source is MCX which provides all data for the commodities from November 2005 to October 2016. Besides the above data, the study also uses market returns on National Stock Exchange (NIFTY – 50) and Bombay Stock Exchange BSE - 200) for the same period as the proxies of market. The empirical results show that commodity futures are not found to be an alternative investment class owing to the fact that commodity futures fail to provide the advantage of risk diversification if one uses it as alternative asset class. Capital Asset Pricing Model (CAPM) is unable to describe if one uses the stock market as proxy to market portfolio. It is also found that no prior return patterns are observed in short term as well as long term commodity returns. This study may be useful for investors who are on the pursuit of investing in commodity market to make significant returns.