Structural Transformation Model To Study In The Copper Futures Market Prices

There are two main functions about future market:one is price discovery and the other is hedging.Moreover,price discovery is the most important function.In a regular and canonical future market,the price of the future can discover the price in the future in advance,and then it will pose influence on the price of the spot market.By this way,it will adjust the plan of the suppliers and consumers.Since the function of price discovery related to the necessity and efficiency,many scholars have done a lot of research on this issue and have made a lot of innocence both in the field.But by now,no mater what method they employed,they all assumed that regime is not change throughout the sample period.This paper applies the regime switch model in the price discovery research. It researches the price discovery between domestic and foreign copper future markets,as well as price discovery between copper future and spot markets.The conclusion of the research indicates there is a regime change on the causal relation between Shanghai future market and London future market in 2003.It also indicates the speed of information transmission becomes faster and the causal relation becomes stronger.As the influence of Shanghai future market becomes more powerful,Shanghai copper future price poses a stronger guidance on London copper future price.On the other hand,the research indicates that the causal relation between future price and spot price also changes continuously.During some period,the causal relation is very strong while the other is relative week.Among the samples we use in the research,under the possibility of 54.7%the future market has a strong guidance on spot market and under the possibility of 43.82% the spot market has a strong guidance on future market.This indicates that Shanghai copper future market has a good function in price discovery.