PRICE DISCOVERY INVESTIGATION BETWEEN THE CHINESE SOYBEAN AGRICULTURAL FUTURES AND SPOT MARKETS

Abstract

Currently, the Chinese soybean market is the 2nd largest soybean market around the world in terms of trading volume and growth opportunities. However, the number of relevant academic researches is not sufficient to investigate the fast growing Chinese futures markets. This thesis investigates the price discovery function and cointegration relationship between the soybean spot and futures markets in China from 2009 to 2013. The analysis in this thesis is conducted by using daily data. In the empirical results, lead and lag relationship between spot and futures is demonstrated. Besides, heteroskedasticity test, ADF unit root test, cointegration test, vector error correction model (VECM) estimation, and Granger causality test are conducted in sequence. In addition, impulse response function and variance decomposition are illustrated. The comprehensive results show that cointegration relationship does exist between the soybean spot and futures markets in China, and unidirectional causality between the markets is identified. Futures tend to Granger cause and price discovers spot, though spot suggests insufficient evidence to Granger cause and price discover futures.