Empirical Study On The Efficiency Of China's Wheat Futures Market

China has more than 1/4 population of the whole world. We can not hope to resolve China's grain security problems through international grain market, but only dependent on ourselves. Therefore, the balance of grain supply and demand has been the focus problem. Particularly in recent years, government pay more attention to grain security problems, because of the rising international grain prices and food shortages. Wheat is one of the most important food crops, which is very important in agricultural production status. Wheat as a staple agricultural product, whose price fluctuations has a greater influence on farmers and national grain security. Futures as a good financial instrument to avoid the risk, has been great important in our state. Wheat future is a major variety of China's futures market which has not been suspended from trading since 1993. Whether the market is efficient or not is the basic of government regulation. However, the domestic scholars have not reached agreement on whether the wheat futures market is efficient or not. Therefore, in this paper, we do an empirical test of the effectiveness of China's wheat futures market based on fractal market hypothesis and behavioral finance theory, in order to improve and promote China's market system.The logic of this paper is illustrated as follows:first of all, compared the relevant domestic and foreign literature, then analyzed the wheat production in domestic and foreign countries and the development of China's wheat futures market, and later analyzed whether the china wheat futures market is efficient or not, and finally analyzed the reason of non-efficient wheat futures market based on behavioral finance theory, and in the end, provides policy recommendations. The full text can be divided into five chapters, the first chapter is the introduction, Chapter II analyzes the wheat production in domestic and foreign countries and the development of China's wheat futures market, Chapter III analyzes the effectiveness of China's wheat futures market by using R/S & V/S method based on fractal market hypothesis. Chapter VII analyzes the reason of non-efficient wheat futures market based on behavioral finance theory. Chapter IV is the summary and providing policy recommendations, needs for further researches.The main conclusions are as follows:Because the wheat futures yield is more spike sequence,fat-tail characteristic than the normal distribution, we analyzes the effectiveness of China's wheat futures market by using R/S & V/S method based on fractal market hypothesis. In this paper constitution of continuous contract is based on two indicators:month average trading volume and month average positions, then select a long duration single contract. Empirical results show that the classical R/S analysis method will overestimation the impact of Hurst index because of the impact of the sequence of short-term memory. Compared to classical R/S analysis method, V/S analysis method can be more appropriate to calculate Hurst index. Through V/S analysis, it finds out that either the continuous contract or single contract, the Hurst index is lower than 0.5, which indicates that China's wheat futures market has character of mutation,variability and anti-persistence. That means an increase in wheat yield will follow a decline in wheat yield, then the next period is increasing, so the price fluctuations is very severe. The wheat yield is not random walk, and the wheat futures market is not EMH. In order to estimate the non-effectiveness of the wheat futures market, it form an indicator:UE. It find out that the UE is 90% in China's wheat futures market from 4-1-2005 to 31-12-2009.Secondly analyzes the reason of non-efficient wheat futures market based on behavioral finance theory. It assumes that investors in wheat futures market are non-rational. It finds that the yield is Granger causes of trading volume, and they have long-term stable relations, which means that the market information will lead to investor sentiment and behavior change, and also means that the wheat futures market exists anchoring heuristic cognitive bias. In wheat futures market, investors do not meet the traditional "rational man" hypothesis. This paper attempts to use linear regression to describe the relationship between the market information and investor sentiment,behavior. Although the variable coefficients consistents with the T test, the R2 is very small, the goodness of fit is not good, which means that market information is not a good explanatory variables of investor sentiment. They are not a simple linear relationship. Then flexibility is considered, it forms a new time series. Through R/S analysis, it finds out that the wheat futures market information has a long impact on investor sentiment, which means that the absolute increase of yield will increase the trading volume, and this trend will be last for 84 days, so the investors can not adjust their expectations in time. This shows that the wheat futures market exists anchoring heuristic cognitive biases, and which is one reason of non-efficient wheat futures market.