An Empirical Study On The Price Discovery Function Of Shanghai Shipping Derivatives Market

Although China’s port cargo throughput ranks No.1 in the world, it is still not a shipping superpower.This is mainly because China does not have much say? in the international shipping market in terms of pricing. An important reason that causes such a situation is China’s serious lag in the development of its shipping dirivatives market. In 2014, the State Council issued Framework Plan for the China(Shanghai) Pilot Free Trade Zone which puts forward the aim of actively promoting the development of shipping financing and accelerating the development of freight index derivatives. Shanghai Shipping Exchange has already issued a series of shipping price index based on which many freight index derivatives are introduced. A primitive freight financial derivatives market has been structured. At present, however, it does not have much influence on the world. According to the industry experts’ intuitions, the present freight index derivatives of Shanghai Shipping Exchange fail to function well in price discovery, which obviously contributes little to China’s efforts to gain a growing voice in the international shipping market.In order to verify this intuition, it is necessary to make an in-depth analysis of the nature of the established derivatives trading and the efficiency of market trading so as to provide theoretical legs for market improvement and avoid errors in policies caused by empirical judgement. At present, domestic scholars payed little attention on this question. In order to get a solid conclusion,We systematically studies this question using econometrics, financial physics theories and methods.Firstly, based on the fractal theory, we study multifractal characteristics of spot and future markets of SCFI(EU and UW)and CBCFI(QH and QG) from the perspective of multifractal; Secondly, we study the spot and futures markets of SCFI(EU and UW)and CBCFI(QH and QG) using econometric methods, mainly involves the time series analysis, Johansen cointegration test, Granger causality test, impulse response function, etc;Finally, we research dynamic nonlinear lead-lag relationships between spot and future markets of SCFI(EU and UW) and CBCFI(QH and QG) using Thermal Optimal Path theory, with the introduction of the distance matrix between two time series, we transfer the traditional economic problems into the classical model of statistical physics, using recursive calculation of partition function,it could be eventually found that the lead-lag relationship existed between the two series.Through empirical research, this paper found that:In terms of risk characteristics,(1) using MF-X-DFA research on future and spot market of SCFI(EU and UW), we found that both of them have multifractal property, and spot market’s multifractal property is stronger than future markets’,and we can conclude that the risk of spot market is bigger than future market.(2) using MF-X-DFA research on the futures and spot market of CBCFI(QH and QG), we found that both the future markets of QH and QG have multifractal properties; However, the spot market of QH and QG do not.In terms of price discovery function,(1) according to the econometric analysis, time Series did not show the stable corresponding relationships in four future and spot markets, and it can’t be concluded that price fluctuation in the future markets is the unbiased estimation of the spot prices, futures can’t forecast the spot better than the regression model do, so we conclude that the four markets are inefficient, and the future markets’ uncertainties and potential risks are big.(2) we found that the relationship between the four future and spot markets have been in a dynamic change when we research the nonlinear lead-lag relationships between future and spot of the shipping derivatives according to TOP.Based on the above findings, it is concluded that there exists abnormal Risks and the lack of price discovery function in Shanghai shipping derivatives market, because the most important function of futures markets is price discovery function, so it is the important internal reason of China lacking pricing power in international shipping market. In order to solve this problem, we can take relevant measures, such as the the relaxation of regulation on financial institutions and state-owned enterprises in shipping derivatives trading, improving traders’ s knowledge on shipping derivatives, promoting the innovation of shipping derivatives, and so on.