Time Series Analysis And Forecasting With ARIMA Model-Gold Derivatives At MCX

Abstract

Gold futures and options trading have emerged as a recent trend in the Indian financial market. The Securities and Exchange Board of India (SEBI) granted permission for commodity options trading in March 2017, and subsequently, the first gold options were introduced on October 17, 2017. In contrast, gold futures trading was initiated in 2003. Despite this development, there is a scarcity of research on commodity derivatives in India, with the existing studies primarily focusing on aspects such as the impact of derivatives on implied volatility, price discovery, hedging effectiveness, and concerns associated with derivatives trading.

This research paper aims to address this gap by analysing the trading volumes of gold options and gold futures from October 2017 to September 2022, utilizing data obtained from the Multi Commodity Exchange (MCX) website. Statistical techniques were employed to analyse the collected data, and the significance of the results was assessed through an ANOVA test. Also, in this paper ARIMA model is used for time series analysis and prediction of trading volumes. The analysis showed that the trading volumes data is seasonal so we used simple season model ARIMA (1,1,1) (1,1,1).

The findings of this analysis reveal that the trading volume of gold futures is considerably higher than that of gold options. This disparity can be attributed to the limited popularity of gold options among investors. It is apparent that investors possess inadequate knowledge regarding the specifications of options contracts and trading strategies involving options and futures.