Empirical Research Of Domestic And Foreign Futures Market Price Discovery And Relationship

Since its open in 1990s, China's futures market has had an uneven developing path. Several events make people doubt its fairness and its function is questioned. This has greatly constrained the development of China's futures market. With the strengthening regulation in recent years, the environment, structure, and scale of the futures market have changed greatly. However, its efficiency and function still needs further study. With the rapid development of China's economy, the futures market has been facing good developing opportunity. The futures of stock index have been proposed. So it's quite necessary for us to study futures market theory intensively. Price discovery function is the base for the existence and development of futures market, and is also the prerequisite for futures market to function hedging effectively, so it means much for futures market. Based on this, the research here takes China's futures market as the study object. The focus is on the relationship between China's futures market price discovery effectiveness and foreign and domestic futures market price, so that weakness of the market's development can be found and essential factors constraining China's futures market international pricing mechanism can be studied. Then proposals of development are made accordingly.In this paper, cointegration theory is in use which has been utilized widely in the international study of price discovery effectiveness tests. In the study of China's copper futures, soybean futures, cotton futures, and London copper futures price discovery effectiveness, we find that their price discovery functions are all effective under the significance level of 1%. At the same time, the results of Mckenzie & Holt and Kellard's study also demonstrate that Chicago soybean and New York cotton price discovery function is effective.Based on the effectiveness of price discovery, this paper makes further study on the relationship of the three's international and domestic futures' price. Granger causality test shows that the international futures price of the three are Grangerly causing the domestic futures' price. Shanghai copper is Grangerly causing London copper futures price in recent years, while soybean and cotton domestic futures' price are not.On the study of China's staple goods international pricing ability, this paperadopts the Garbade-Silber model. The result is, Shanghai copper futures international pricing influence is relatively strong, Dalian soybean is in the middle, while Zhengzhou cotton is low. This can be explained from the trade volume aspect to some degree.In the end, with cointegration and ECM model, this paper constructs hedging strategy between London copper market and Shanghai copper market that is deemed as the most mature, regular and functional in domestic futures market by parties. The result is satisfactory.