An Examination of the Maturity Effect

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• An Examination of the Maturity Effect
• in the Indian Commodities Futures Market
• By
• Ashutosh Verma
• C.V.R.S Vijay Kumar
• Indian Institute of Forest Management, Bhopal

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Maturity effect means variance of future price
changes per unit of time increases as the time
to maturity decreases. BCSS hypothesis states
that maturity effect will be present in those
contracts where the covariance between net carry
cost and the spot price is negative.
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Proposed study examines the Samuelson and BCSS
hypotheses in the Indian agriculture commodities
futures market Literature Review Extensive
studies in the financial futures markets Studies
on commodities futures market in developed
countries.
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• Research Problems
• Do the Indian agriculture commodities futures
  markets have maturity effect.
• Does the negative covariance between the net
  carry cost and spot price explain the maturity
  effect

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Data Logarithmic returns of the daily
settlement prices of all the agriculture
commodities futures contracts. Prices for the
maturity month of the contract will not be
considered. Volatility and net carry cost will
be computed on daily basis. Each contract will
be examined individually.
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• OLS Regressions will be performed for
• Daily volatility on time to maturity
• Daily volatility on time to maturity, calendar
  month and year on aggregated data
• Relationship will be analyzed for
• Net carry cost and spot price
• Maturity effect and covariance between net
  carry cost and spot price.