Price Stability Of Chinese Agricultural Commodities In Spot And Futures Markets

This paper builds a dynamic equilibrium model of spot and futures markets, analyzes the effects of futures trading in a market for a storable commodity in which output is certain and all agents have access to identical information. We are able to draw a nearly definitive conclusion on this issue that the futures market stabilizes the spot price. In this paper, we first bring up the concept and formula of "competitive expectations on price", which is a good explanation of the price discovery function of futures markets, and leads to price stability. The model was supported by the empirical examination:1) In chapter 3, the performance of discovery function about the Chinese white sugar price have been reviewed and analyzed from different method.2) The analysis in chapter 4 is drawn from the historical record on the prohibition and establishment of Chinese white sugar futures markets. Briefly, the results presented in this paper strongly suggest that the establishment of futures markets were associated with-and most likely caused-lower white sugar price volatility.