An Empirical Study Of The Efficiency Of Chinese Soybean Futures Market

In recent years, through studies of the competitive factors of Chinese agricultural market, sound agriculture market system has not only taken on price discovery and risk avoidance functions, but also contributes to government's macro economic control. With a short history of market economy, market system, especially agricultural market in China, is not in perfect condition. Being a non-neglectable part of agricultural market, agricultural futures market's function has a great effect on the improvement of agricultural competitiveness.In regard to market efficiency, American scholar Eugene F. Fama (1970) advanced Efficient Market Hypothesis (EMH). In the theory, he believes that if price fully utilizes all available information in a financial market, the price of every asset should equal the value of investigation, and participants of the market has little information to make risk premium, on such condition, the market is efficient. In investigating the change of securities prices, Fama divides the market into three types, weak form efficiency, semi-strong form efficiency and strong form efficiency.The methodology of efficiency test begins with the test of weak form efficiency. Its main idea is to test past revenue's ability to forecast that of the future. If the market is efficient, there is no room to make risk premium according to past information. There are many ways to carry out such tests, and the most popular one in early papers are Random Walk Model. However, the two basic premises are that price variable must submit to a normal distribution; and variance must be constant and unchanged with time. But some scholars discover that the prices of financial assets do not totally walk randomly, many of them have a fat-tailed or leptokurtic distribution, and to solve this problem, new model and methodology have been introduced.This paper is based on Fama's market efficiency theory. Beginning with basic test of weak form efficiency, the paper investigate the efficiency of Chinese Soybean futures market. According to futures prices from Dalian Commodity Exchange and spot prices from national soybean prices of Heilongjiang agriculture web, we test the efficiency of Chinese soybean futures market, using Integration Test, Granger Causality Test, and Error Correction Model. In the process of our test, besides integration relationship between soybean futures prices and spot prices, we also test two other necessary conditions, independence of residuals and unbiasedness of constraints. We find that soybean futures prices and spot prices have an integration relationship, and futures prices are the cause of spot prices, but the unbiasedness is rejected.The main structure of the paper is as follows:In Chapter 1, we summarize existed literature from both domestic and abroad view, aiming to find out the current results of past literature, and get a breakthrough point.In Chapter 2, we introduce the theoretical basis of our study, including market efficiency theory and basic test methodology.In Chapter 3, we establish and develop a model for market efficiency test. From the basic unbiasedness test, we develop the model into an integration one. To solve the problem of data, we further introduce an Error Correction Model, followed by a joint test. In the last chapter, we carry out empirical test on the model set up above. Then we try to analyze the result and draw on an inclusion.This paper is unique for it tests three necessary conditions of the efficiency of futures market respectively, using Integration Test, Granger Causality Test, and Error Correction Model.Our study has academic and practical meanings, contributing to government's control and supervision of China's soybean futures and spot market. It provides reference to making rules and regulating soybean futures market, and helps to avoid management risk.