Paper Title
Testing of the Mixture-of-Distribution Hypothesis in India Commodity Futures Markets

Abstract
This paper empirically investigates the contemporaneous relationship between futures price volatility and trading activity including trading volume and open interest, for agricultural, metals, precious metals and energy commodities traded on Indian commodity derivatives market. Trading volume and open interest are included in this paper to distinguish between speculators/day traders and hedgers. The relationship between volatility and trading activity is more important in emerging market context where derivatives markets are generally criticized for speculative activity and destabilizing effect on spot market. This study uses three different measures of volatility: (1) daily volatility measured by close-to-close returns, (2) non-trading volatility measured by close-to-open returns and (3) trading volatility measured by open-to-close returns. Following Bessembinder and Senguin (1993), volume and open interest are divided into expected and unexpected components. The contemporaneous relationship between volatility and trading activity is investigated by augmented GARCH model where expected and unexpected components of trading activity (volume and open interest) are used as explanatory variables. This is also an empirical test of the Mixture of distribution hypothesis (MDH) in Indian commodity derivatives markets. We find positive and significant correlation between volatility and trading volume for all commodities under consideration. It is found that although volume and open interest parameters are significant, volatility is mainly explained through its own lagged values. We do not support MDH for Indian commodity futures markets. It seems that in Indian commodity futures market trading activity does not proxy for information. Keywords - Indian Commodity Futures Markets, MDH, Variance Decomposition and Impulse Response Function