Research On The Efficiency Of China's Agriculture Futures Market

There are two major kinds of methods to test EMH in futures markets: Random Walk Test and Cointegration Test.Random Walk Test is used to test the predictability of the futures price. And it includes three sub-methods: Autocorrelation Test, Technological Analysis Test, and Run Test.Cointegration Test is use to test whether the futures price is the non-bias estimation of the spot price when the futures contracts get matured. It includes three steps: Unit Root Test, Cointegration Test, and Error Correction Model Test.This paper used these two major kinds of methods to test the market efficiency of China's main commodity futures markets, including the soybean and soybean meal futures market of Dalian Commodity Exchange and the wheat future market of Zhengzhou Commodity Exchange. The data used in Random Walk Test is the settlement price of all of the contracts of the three commodity futures in 2004. And the data used in Cointegration Test is the cash price when the futures contracts get matured since 2000 and the futures price of horizon 2-weeks, 1-month, 3-months, and 6-months.Random Walk Test includes three sub-methods. But their conclusion is different.The conclusion of the Run Test is accordance with the Autocorrelation Test. They both show that in some cases the price of the futures contracts is unpredictable , while in the other cases the price is predictable. So we can't conclude that these three futures markets are efficient or unefficient. But, The conclusion of the technological analysis is totally inconsistent with the that of the other two methods. It indicates that when we use the MACD index as a guidance , we can always get excessive revenues. It means that these three futures markets are all unefficient.Cointegration Test includes three steps, and they are the three conditions of market efficiency. The soybean future market and the soybean meal future market of Dalian Commodity Exchange meet the first two conditions of market efficiency. It means that there exists weak evidence to prove these two markets are efficient. But because they don't meet the third condition, we can't conclude that they are completely efficient. The wheat future market of Zhengzhou Commodity Exchange meets the first condition of market efficiency, but is unsatisfied with the second and the third condition. So we can conclude that it's unefficient. The Cause of this situation is that the domestic wheat cash market is intervened by the government, and there lacks abundant hedgers and arbitragers in the wheat future market, so the speculation power is excessively large.