Wavelet-Based Analysis of Guar Futures in India : Did We Kill the Golden Goose?

Purpose – Guar Gum (GG) is used in Shale oil exploration. Excessive price increase in the Guar futures markethad a spillover impact on Guar spot prices and affected Guar export from India as Shale oil producers startedexploring alternate sources. In this paper, the role of excessive speculation in the futures market, and itsadverse impact on the guar-based agri-business ecosystem have been empirically explored.Design/methodology/approach – Volatility spillover dynamics between WTI crude oil and Guar futureshave been explored using bivariate-Granger Causality, BEKK–GARCH models with Wavelet multi-resolutionanalysis. The wavelet-based models capture the multi-scale features of mean and volatility spillover to identifythe effect of heterogenous investment behavior in the time and frequency domain.Findings – The results provide evidence that excessive speculation in futures markets increases spot marketvolatility. The results also suggest that the excess presence of short-term investors can destabilize the futuresmarket.Research limitations/implications – The purpose of the commodity futures market is to support pricediscovery and risk management. However, speculative practices can destabilize these purposes leading to thefailure of the business ecosystem.Originality/value – The novelty of this paper is twofold. First, it explores the economic linkages between thespot and futures market and tests whether the presence of heterogeneous traders affects the economic linkages