The purpose of this paper is to investigate price discovery function, volatility, liquidity spillovers and Destabilization of commodity markets by reviewing the Theoretical models developed over a period of time. It was found that Price discovery exists for the commodities with long run equilibrium between future and spot market. However, the existence of long run equilibrium does not imply efficient future market. Spillover is the change in the conditional variance in one market lead by a change in the conditional variance of another. Also, price destabilization is the volatility in one market caused from trading activity in another. The present study will aid academicians, future researchers, policy makers and other relevant stakeholders in studying the theoretical framework. The price discovery function of future market has always been an area of discussion in financial literature. Some researchers suggest that future markets are more efficient than spot markets and enhance dissemination of information. Trading in future markets improves the depth of the commodity market. There are others who blame future trading for destabilizing spot market. To empirically analyze the relationship between spot and future market it becomes necessary to firstly deliberate upon the concept of price discovery, spillover and destabilization. This chapter focuses on the models for determining future prices and discusses price discovery in future and spot markets, volatility and liquidity spillover between future and spot market and spot market destabilization from trading activity in future markets. This paper comprises of six sections. The first section, focuses on the models for determining future prices. Section 2 elucidates the concept of price discovery while section 3 talks about the spillovers across markets. Section 4 discusses price destabilization and the last section contains a summary of the paper.

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Keywords: Price Discovery, Spillover, Destabilization, Spot Market, Stakeholders.