Study Of China's Futures Market Functions

Great crisis descends on global financial system in 2008. Western market economy countries represented by America, suffer greatly, and the crisis spreads to every corner of the world. In this crisis, the functions of futures and other derivatives are seriously questioned. Is futures market a curse or boon? To answer this question, a review of the development of global Futures markets as well as a systematic analysis of the transformation of its function become invaluable.2008 is the thirtieth year since reform and opening-up. During this period, Chinese economy, in a stage of renewing and transforming, creates a splendid history and accomplishes remarkable achievements. It is time to summarize the basic theories of Chinese socialist market economy and bring innovations.After twenty years of development, Futures markets, as something of foreign origin, play a positive role in China economy. Hence, reconstructing the functional model of the futures markets and building a robust economic system with Chinese character are conducive to the combination of futures markets and entity economy as well as better service of economy development.This thesis mainly employs empirical and comparative approaches, discussing the functions of futures markets, describing the phenomena in these markets, explaining relative behaviors, expounding on internal and external causes, and searching feasible solutions. This work intentionally avoids abstract theoretical study. By placing emphasis on comparison with different stages in developed futures markets, it identifies the current characteristics of our domestic futures markets.This thesis, borrowing lessons from game theory and behavior economics, explores the generation mechanism of equilibrium price under uncertainty and the possibility of reaching the Pareto optimum. Analyzing the generation of equilibrium price and corresponding external conditions from game theory makes this work pleasant to read and easy to be understood.In several chapters, the author employs an approach that combines mathematical equations and geographic figures. Four quadrant analyses are applied to futures markets and a functional relation between input factors and outputs is established. The author improves the explaining capacity of the models by exercising the most advanced measuring method, co integration test. And by this means the stability and robustness of the models are enhanced.It is necessary to combine history experience and logic reasoning, to value both quantitative and qualitative analysis, to find both linear and nonlinear relation, and to practice normal study as well as empirical study.Chapter one reviews works that concern themselves with studying functions of domestic and foreign futures markets. It sums up and discusses representative theories from seven aspects such as function and duty of futures markets.Chapter two, using an international perspective, borrowing lessons from evolving paths and functions of American, British, and Asian futures markets, carries on an empirical study on futures markets function during 1929 economic crisis, 1987 financial crisis, 1997 southeastern Asian financial crisis and 2008 financial crisis. It proposes an original idea of reverse relationship between inductive sequence and resulting sequence.Chapter three begins with a review on theoretical and practical preparations of the introduction of futures markets in our country, which experts on futures can skip. The second part in this chapter conducts a creative analysis on the different evolving paths of domestic and foreign futures markets. It points out that domestic path is marked by"theory first, learning from mistakes". The reason is that Chinese futures markets are based on a situation of"small enterprises, weak markets"of economic transition period rather than a relative developed commodities markets. It also points out the core function of futures markets is risk management and proposes an operation advice for monitor agencies, which is zero intervention of the price fluctuation and zero toleration toward violation of the market codes. The third part of this chapter analyzes the relations between futures markets and capital markets as well as insurance markets in great details. It concludes that futures markets development is the same as insurance markets. Hence theories on futures should root in insurance and futures markets are practice of insurance risk management theories. In this part, the relations between banks, capital markets, insurance markets, and futures markets are presented using a four quadrant illustration.Chapter four starts its research on futures market from the theories put forward by behavior economics. By this means, it evaluates the effects of physiological states of participants on the formation of the price in futures markets. Meanwhile, on the basis of Marxist political economics, it corrects some misunderstanding about futures markets. In this chapter, the author divides the development of futures markets into four stages and creatively forms a four-stage model for domestic futures markets.Chapter five considers how to further improve the function of our domestic futures markets from aspects of management mode changing, participants optimizing, scale effect, efficient factors, and benefit structures. Particularly, benefit structures are a rarely touched field in futures study. The author, drawing lessons from his own years of practice in futures markets, suggests that a healthy future markets need a fair benefit distribution between futures exchanges and futures corporations. A sell-side market with fine benefit structures will serve our economic development well.Chapter six, analyzing from a macro scale, puts forth that our emerging futures markets can make related industries operate more efficiently and more stably, can be leading index for economy, and can be ground for macro regulation and monetary policy making. The main conclusion is that mature futures markets are public products, which have strong positive externalities, just as education and environmental protection. Therefore policymakers should support the development of futures markets.Chapter seven is focused on how to expand the function of our futures markets under an opening condition. In the international trade, our relative advantages can not last forever. We need to think as a grand nation and compete for the saying right and pricing right in international bulk commodity markets. We should have some control over the structure of world economy by soft power coming from exerting effects on the bulk commodity prices. This is an everlasting strategic issue during peace times.Chapter eight proposes five policy suggestions on how to further improve the function of our domestic futures markets, which are as following: institute an administrative committee of derivatives; ease the burdens of futures markets; encourage more enterprises to take risk management through futures markets, to transform economic development mode, and to enhance core competence; lower transaction cost of futures markets by great measures; boost trials of options on agricultural commodities. In this chapter, a strategy on how to compete for pricing right is designed by the author. Finally, this chapter puts forward three feasible steps for opening up of domestic futures markets.Admittedly, the work is constrained by the author's knowledge and ability. It doesn't quit grasp the whole picture of the dynamics of futures markets. However, it can serve the purpose of attracting more attention and more research on related subjects.