Investigating the causality direction between saffron cash and futures markets focusing on periods of boom and recession

Investigating the causality between the futures and spot markets of a commodity is always an important question for market traders and policy makers. By launching financial derivatives including futures and options for saffron in Iranian commodity exchange since 1397, this question has also been raised in the Iranian saffron market. The main purpose of this paper is to determine the causality between the spot and futures markets of saffron. The required data were obtained daily from the Iranian commodity exchange as well as the Saffron World database during June 2018 to November 2019 and analyze based on Granger causality test and generalized autoregressive conditional heteroskedasticity (GARCH) models. The results show that, in general, there are no explicit causal direction, but by distinguishing between ascending and descending periods, it is clear that in the descending periods, absolutely, causality has been from futures market to spot market and in ascending periods, For some, causality has been from spot market to the futures.