Commodity Bubbles: Evidence from the Indian Market

Abstract

This paper investigates whether rational speculative bubbles are present in 17 commodities traded in the Indian commodity market. Paper applied duration dependence test on the daily returns of the spot prices. We observed that 6 out of 17 commodities have witnessed some spells of rational speculative bubbles. These commodities are: Chana, Pepper, Refined Soya oil, Yellow Peas, Rapeseed, and Chilli. Additionally, the paper reports mean reversion in Nickel, Castor seed, Chana, Pepper, Zinc, Cotton oilseed cake, and Guar gum. Evidence of random walk is provided by using variance ratio test for Crude palm oil, Castor seed (except slightly at lag 8), Groundnut, Pepper, Yellow Peas (except at lag 2), Cotton oilseed cake, Mustard seed oilcake (only at lag 2), and Chilli. This is further corroborated by using BDS test for non-linearity.