The Impact on Risk Management and Price Discovery due to Governmental Intervention: A Case of Two Commodity Futures

Abstract

The study explored the impact of government intervention on price discovery and hedging efficacy concerning the agricultural commodities futures market, specifically on Chickpea (Chana) and wheat futures traded on India's NCDEX. This study examines variations in price discovery events before and after the intervention, utilizing the Garbade-Silber (GS) model and Granger causality tests. The Minimum Variance Hedge Ratio (MVHR) assesses the efficacy of hedging. The results demonstrate significant changes: post-intervention, the futures price of chickpeas exhibits enhanced efficacy in price discovery, but the future-led relationship within the wheat market diminishes. Moreover, chickpea futures exhibit stable hedging efficacy, but wheat futures experience a decline in effectiveness, likely attributable to heightened volatility. The findings indicate the varying effects of regulation on commodity markets, suggesting that targeted interventions could enhance market stability and efficiency. It is beneficial for policy analysts, market participants, and researchers in agricultural futures markets. © 2025 Elsevier B.V., All rights reserved.