Price Discovery of Crude Palm Oil In Indonesia Spot And Futures Market

Abel Gandhy, Harianto Harianto, Rita Nurmalina, Suharno Suharno

Abstract


Crude Palm Oil takes an essential role in the Indonesian economy. As the largest producer of Crude Palm Oil, it is necessary to analyze the process of price discovery in the market. The research investigates the price discovery of Crude Palm Oil Commodities of spot and futures market in Indonesia. Granger Causality is used to examine the price discovery of Indonesia's spot and futures market and the relationship with the Malaysia futures market and Rotterdam forward market as the International futures market. We used daily price data starting from January 2016 to December 2020. The findings depict a bidirectional causality relationship between spot and futures Crude Palm Oil markets in Indonesia. Futhermore, Jakarta futures market has an important role in the process of CPO price discovery in Indonesia. Bidirectional Causality also occurs in the Indonesian spot market with the international futures market and between the Jakarta futures market with the international futures market. The flow of information from the Malaysian futures market has the most significant impact on the Crude Palm Oil price discovery process. This research shows that the futures and spot markets play a vital role in the price discovery process for Crude Palm Oil commodities in Indonesia. Thus, market participants need to observe information related to the spot futures market and the spot market before making business decisions.


Keywords


Palm Oil, Futures Market, Price Discovery

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DOI: http://dx.doi.org/10.52155/ijpsat.v29.2.3791

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