Price Discovery Research On Chinese Soybean Futures Market

Futures is one of the most imortant financial derivative instruments. It plays two main roles in the economy: price discovery and hedging, among which, the former one plays a more basic role. Price discovery is a process of determining the price for a specific commodity or security through basic supply and demand factors related to the market. Taking soybean of Dalian Commodity Exchange as an example, this article examines the dynamic relationship between spot price and futures price. By using Correlation Test, ADF Test, Co-integration Test, Granger Course Test, and Vector Error Correction Methods, it also discloses the role of futures market playing in price discovery. The results from this research suggest that the spot price and futures price have a strong correlation. Under the prominence of 5%, the two time serials, spot price and futures price are co-integrated. Besides, there are interactions between spot price and future price, which shows that the futures market plays a dominant role in the price discovery.